Many older Americans face an ugly reckoning right now: To retire on time, they ll need to increase what they save by as much as 80 percent. But savvy investors are figuring out how to close the gap by turning their savings into extra income. In its May issue, SmartMoney magazine offers a guide to keeping the cash flowing.

In hindsight, Sharon Brown s timing could have been a lot better. Two years ago Brown, a nurse in Mount Laurel, N.J., plowed almost 100 percent of her savings into stocks, figuring that would be the best path to retiring by 65. Instead, it turned out to be a path to huge losses in the 2008 crash. Nearly half of Brown s portfolio evaporated, along with her confidence. A widow with two teenage sons, Brown then considered swinging the other way, into CDs and money markets a move that would have made her miss out on the market s 2009 recovery. Her planner talked her out of it, and today she s finally found some balance: While she s still playing it safe with annuities and CDs, almost half her portfolio is now in the kinds of stocks and bonds that can rebuild her savings faster and pay her some income. I m cautious and conservative, Brown admits, but she now knows she has to play offense as well as defense.

With short-term price gains expected to be low, of course, the offense played by stocks may be less Drew Brees football fireworks and more three yards and a cloud of dust. That s why advisers are reemphasizing dividend-paying stocks, which pay a portion of their revenues directly to shareholders. Granted, the recession wasn t kind to dividend yields, as beleaguered companies got stingy and cut payments. The average yield of stocks in the S&P 500 is currently 2.0 percent, down from the historical average of 3.8 percent. In the days of go-go stocks, we would have laughed at that, says Joan Crain, a senior director and wealth strategist at Bank of New York Mellon. But the trend is turning, as companies see their profits improve. Standard & Poor s senior index analyst Howard Silverblatt says that since November, there have been around 100 dividend increases and only two decreases; overall, he expects that dividend payments will rise this year after having fallen for the past two.

Some stocks are more generous than others, of course: Utility stocks, for example, currently pay more than 4 percent in dividends. But some planners think retirees can invest more efficiently by leaving the dividend hunting to mutual fund managers who specialize in it. Morningstar analyst Russel Kinnel recommends T. Rowe Price Equity Income, American Funds Washington Mutual and Vanguard Dividend Growth.

The Cash-Rich Retirement:
* Intro * Diving for Dividends * Investing Overseas * The Annuity Option * CDs With a Kick * Trimming Taxes and Fees