10 Ways to Pay for Retirement

It’s best to set up several of these sources of retirement income.

It’s best to set up several of these sources of retirement income
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Annuities or insurance plans. Immediate annuities promise a steady stream of payments, no matter how long you live. The catch is that you must hand a large chuck of money over to an insurance company that you can't get back for emergencies or give to heirs, and the costs of this investment can sometimes be high. "If someone doesn't have much beyond Social Security in the form of an annuity income, I think there's a lot of benefit to creating an annuity because it spreads the risk of dying across large groups of people," Christopher Jones says. "You might annuitize enough money to cover all your basic expenses between the annuity and Social Security, and then use the rest of your assets for other things." Some 9 percent of workers are counting on annuities or insurance plans to help fund their retirement years, and similarly, 9 percent of retirees receive retirement income from these sources.

Part-time work. Many current employees (21 percent) expect a part-time job to be a major source of their retirement income, but only 3 percent of retirees say they receive significant income from continuing to work in retirement. "Even if people have a desire to work in retirement, there may not be enough jobs for those people," Jeffrey Jones says. Retirees under age 70 (5 percent) are more likely to receive a significant amount of income from a job than those age 70 and older (2 percent).

An inheritance. A few workers (8 percent) are hoping an inheritance will help to fund their retirement years, but only 3 percent of retirees are actually using inherited money to pay for retirement. People in their 20s (14 percent) are significantly more likely than those in their 50s (3 percent) to think money willed to them will enhance their retirement plan. "Even if you have a parent that may have significant assets, they might be eaten up paying for assisted living or home care," Salverda says. "I certainly wouldn't count on it, and then if you do get it, it's kind of a bonus."

[Read: The Best Tax Breaks for Retirement Savers.]

Rent and royalties. Income from rental properties or royalties from previous works is a significant source of income for 4 percent of retirees. And about 6 percent of workers hope rent or royalties will be a significant portion of their retirement plan. "I view rental income as one of the more risky ways to have retirement income because there are so many things that can affect an individual property and its ability to produce income. All you have to do is have one really bad tenant, and this really good investment can become a nightmare," Christopher Jones says. "It might be better to have your money in a real estate investment trust, where you still get the benefit of income but it is spread across hundreds of real estate investments instead of one piece of real estate."