The 10 Biggest Sources of Retirement Income

Working Americans tend to have one major source of income: their job. But once you retire, your income is likely to come from several different sources, including retirement account withdrawals, monthly Social Security payments, and increasingly, a part-time job. Here are the 10 biggest sources of retirement income.

Social Security. According to a recent Gallup survey of 1,020 Americans, 54 percent of retirees say Social Security is a major source of income. About 34 percent of current workers expect Social Security to largely fund their retirement, the highest Gallup has recorded in this decade-long annual survey, and up 7 percentage points since 2007.

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Retirement accounts. Almost half (45 percent) of Americans expect to fund their retirement with a 401(k), IRA, Keogh, or other type of retirement account, Gallup found, down from 52 percent in 2007. But only 22 percent of current retirees consider retirement account withdrawals to be one of their major sources of retirement income.

Pensions. A record low of 23 percent of workers expect to receive pension income in retirement, down from 31 percent in 2007. Fewer companies are offering pensions and new workers who join pension plans may receive less generous payouts than their elders. About 37 percent of current retirees get pension income.

Savings accounts and CDs. Some 13 percent of current retirees are using the money accumulated in savings accounts and certificates of deposit to fund retirement, while 22 percent of current workers hope these conservative savings options will provide a secure source of retirement income. "For a retiree to have a part of the portfolio in more liquid investments is a cautious and more prudent move," says Rick Shapiro, a certified financial planner for Investment and Financial Counselors in West Hartford, Conn., who recommends that retirees keep between two and four years' worth of living expenses outside of the stock market. "If the market tanks again, they will be more protected."

Stocks and stock mutual funds. The stock market is falling out of favor as a way to generate income in retirement. Only 1 in 5 current workers think stocks and stock mutual funds will provide a significant amount of their retirement income, down from 24 percent in 2007. About 14 percent of current retirees are using stocks or funds to pay for part of their living expenses. There can be tax advantages to holding stocks outside of your retirement accounts. Retirees must pay regular income tax on withdrawals from traditional 401(k)'s and IRAs. Equities held outside of retirement accounts are taxed at the typically lower capital gains tax rate. "If you have an account that is paying qualified dividends and long-term capital gains, those are probably investments that are better to have outside a retirement account," says Shapiro.

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Home equity. The equity you have built up in your home can be tapped to pay for retirement. But the percentage of Americans planning to leverage their home has dropped from a peak of 30 percent in 2007 to 20 percent today, tying a record low. That 20 percent matches up exactly with the number of retirees using their home to fund retirement. Reverse mortgages and other ways of utilizing home equity to pay for retirement should be approached with caution. "I think going into debt to finance any kind of consumption should be considered only as a last resort, and if there are no other assets and no concerns for giving an inheritance to the children," says Jeremy Portnoff, a certified financial planner for Portnoff Financial in Westfield, N.J.

Part-time work. Finding a part-time job in retirement may become necessary for workers who don't save enough. Some 18 percent of employees think they will work part time in retirement, up from 10 percent in 2001. However, retirees who want to work must be able to find and keep a job and be healthy enough to continue working. Only 4 percent of retirees in the survey said they currently work part time.

Inheritance. An inheritance could solve all your retirement income worries. About 9 percent of current workers expect a significant amount of wealth to be willed to them, but only 3 percent of current retirees said an inheritance is helping to pay for retirement. The lesson: Inheritances don't always come through. "You benefactor could live longer than expected and need more of those assets," cautions Portnoff. "Beneficiary forms are very easy to change."

Annuities or insurance. Annuities are financial products that guarantee purchasers payments as long as they live. Some 8 percent of both current workers and retirees say annuity payments or insurance plans will make up a significant part of their retirement strategy. Retirees should be cautious about the fine print and expenses associated with these financial products. "Annuities are sold very commonly to older people that they are very inappropriate for," says Sheryl Rowling, an accountant and personal financial specialist for Moss Adams Wealth Advisors in San Diego, Calif. Ask an independent financial adviser to review your annuity paperwork before purchasing.

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Rent and royalties. Royalty payments typically come from patents, trademarks, or copyrights. Property owners can also earn money from their real estate investments. Some 6 percent of working Americans expect to receive income from rental properties or royalty payments throughout their retirement, and 5 percent of retirees continue to receive income this way. While it is generally not a good idea to make rental income the centerpiece of your retirement finances, it can make up a good portion of your retirement income. Says Rowling: "If you have real estate as a supplement to an investment portfolio and IRAs and other retirement income, then that can be a very good thing."