Worried About Your Savings Running Out in Retirement? Why Dividend Stocks Could Be a Solution

Planning for retirement can be stressful because it can be challenging to determine how much you'll really need. Not only do you need to consider how much money you'll need to sustain your lifestyle each year, but you'll also need to ensure it lasts long enough, while also having a buffer in the event of emergencies. There are, unfortunately, many ways your retirement savings can be drained.

The good news is that there are ways to improve your financial situation in retirement. By investing in dividend stocks, you can generate recurring income on an ongoing basis. Here's why investing in a top fund, such as the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD), can be a great option to consider.

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The Schwab fund will give you exposure to many different stocks

A natural concern when investing in individual dividend stocks is that there's the risk that their payouts may get cut or suspended. Even for stocks with great track records, dividend cuts can indeed happen. While there are often warning signs, many long-term investors who own dividend stocks may not necessarily be staying on top of them all the time. And unfortunately, many seemingly safe long-term investments simply don't turn out that way.

With the Schwab fund, however, all your eggs, or in this case, dividend income, won't all be tied to just a single stock. Instead, the exchange-traded fund (ETF) will give you exposure to around 100 different stocks (currently, there are 104 holdings in its portfolio). The ETF's diversification is what will appeal to retirees, as the fund is centered around stable sectors such as energy, consumer staples, and healthcare -- stocks in those different areas account for a combined 55% of the Schwab fund's entire portfolio.

The fund's yield is high and can help you generate plenty of dividend income

The biggest selling point of the Schwab fund is its yield, which pays you 3.4% (the S&P 500 average is only 1.2%). At that rate, if you wanted to collect $1,000 in annual dividend income, you'd need to invest approximately $29,412. Plus, there's also the potential to benefit from capital appreciation; over the past 12 months, the ETF has risen by around 21%.

All in all, this can be a solid investment to consider for retirement to help stretch your savings as much as possible. Putting money into the Schwab ETF is a fairly low-risk move that can add some valuable dividend income to your portfolio. And with a management expense ratio of only 0.06%, the costs you'll incur will be minimal.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.