Ten ways to pay the bills after you retire

Dad probably has two sources of retirement income – a pension and Social Security. Sure, he has a savings account, but chances are, he's like my mother-in-law. All of that money is in certificates of deposit and U.S. savings bonds and he hasn't spent any of it in years.

But those of us who will retire next aren't going to be so lucky. U.S. News and World Report lists the 10 largest sources of retirement income with the troubled Social Security program at the top of the list with 34% of soon-to-be retirees planning for it to be their major source of income.
  1. Besides Social Security, the other major sources of revenue that U.S News lists are:
  2. 401(k), IRA, Keogh. About 45% of Americans believe these accounts will be a significant contributor to their retirement income.
  3. Pensions. Only 23% of current workers expect to receive retirement pensions.
  4. Stocks and stock mutual funds. After the Great Recession, only 20% of current workers think they'll be investing in stocks during retirement. Just 14 percent of current retirees are invested in stocks.
  5. Savings accounts and CD. Nearly 22% of current workers think these conservatively invested accounts will augment other revenue in retirement.
  6. Home equity. 20% – down from 30% before the real estate meltdown - believe they can live off the value of their homes.

  1. Part-time work. Some 18% of employees think they will work part time in retirement, up from 10% in 2001. Is this realistic when only 4% of retirees currently work part time?
  2. Inheritance. About 9% of current workers expect to inherit a significant amount of money when loved ones pass on, but only 3% of current retirees said they actually have benefited from such largess.
  3. Annuities or insurance. Annuities insure that you'll get a payment as long as you live. Some 8% of both current workers and retirees say annuity payments or insurance plans are a big part of their retirement income strategy.
  4. Rent and royalties. About 6% of both current retirees and workers own rental property or get regular payments from patents, trademarks or copyrights – potentially, a very good thing.
So assuming that most people can cobble together at least three or four of these sources of income, then the big question becomes how much do you have to accumulate to avoid living in cardboard box under Interstate 75?

The first difficulty is calculating how long you'll need income, assuming that once you are below ground, your expenses will drop. Play insurer Northwestern Mutual's Longevity Game to estimate how long you'll be around.

The second problem is just figuring out how much things will cost in another 20 or 30 years. Inflation has been in the 2% to 4% range for the last 30 years. While an annual inflation rate of 3% may not seem huge, over 10 years, it could raise the cost of a $20,000 car to $26,878.

Given average inflation and a long life, research from ScotTrade Adviser Services makes these savings recommendations. You could take them with a grain of salt because these advisers make their money investing other people's money. But their estimates are a startling starting point, especially for anyone who won't have a pension and who isn't sure Social Security will be around by the time they retire.

Generation Y (ages 18 – 26): The recommended goals are the greatest for Generation Y. More than three-quarters (77%) of retirement income advisers suggest a goal of at least $2 million, and more than 40% believe that Generation Y should be targeting more than $3 million in retirement funds.

Generation X (ages 27 – 42): About half of retirement income advisers (46%) believe Generation X should save between $2 and $3 million. 22% suggest a goal of more than $3 million.

Boomers (ages 43 – 64): About 35% of retirement income advisers think Boomers need between $2 million and $3 million to retire, and 13 percent believe Boomers need more than $3 million. 30% recommend a retirement goal between $1.5 million and $2 million.

Seniors (ages 65+)
: 44% of retirement income advisers say $500,000 to $1.5 million is sufficient for average seniors.

Scary? You bet. When I see numbers like this, I start reusing aluminum foil and saving string – at least for an hour or two.
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