There’s a common misconception about how people plan for their retirement: They don’t. And while it used to be something that would often “work itself out,” that’s no longer the case.

“Historically there have been safety nets in place for the non-planner—pension plans, Social Security and private savings,” says Pete Welsh, VP of Product and Marketing Strategy at OneAmerica. But now there’s less of those supports available, he says.

Some say as much as two-thirds of retirement income now comes from sources that future retirees won’t be able to count on. And that, says Rethinking Retirement author Keith Weber, is “not just a financial issue, but a cultural issue that will change the progression of how future generations define their careers and lead their lives.”

Defined-benefit plans are either disappearing or under pressure in the private and government sectors. Social Security benefits are expected to shrink, especially for higher income beneficiaries. Contribution plans aren’t completely assured. Interest rates are practically laughable.

Over the last 30 years, the United States has, by design, converted its retirement income delivery system from an emphasis on pensions managed by professional investment managers to one based on defined contribution plans—think 401(k)s—managed by individuals, explains Richard Schmitt, a Golden Gate University professor and author of 401k Day Trading. The responsibility has left mostly untrained individuals without the time, inclination or interest in managing their retirement savings.

“Many people faced with saving for retirement have become afflicted with inertia paralysis. They either do not save or have resorted to a set-it-and-forget-it investment philosophy with respect to their retirement savings, just hoping for the best.”

And all that’s doing is brewing a recipe for disaster.

“If you don’t plan for retirement, you probably won’t have a retirement,” Welsh adds. Part of that individual responsibility includes personal savings. It’s just too bad most Americans tend not to have it.

Even the more wealthy Americans, according to a survey from Wells Fargo Retirement, are just as insecure about their ability to retire comfortably as their middle-class counterparts. A third of affluent Americans—everyone from age 25 to 75—say they need to significantly cut back their spending to save for retirement, including 48 percent of those with $100,000 to $250,000 in investable assets.

Of course the country’s economic woes haven’t done anything to boost Americans’ retirement planning. After the 2008 financial meltdown, for some, retirement was put on the backburner as more immediate needs were prioritized. Any gains since then haven’t been able to make a dent in the country’s collective pessimism.

Plus, there’s the simple fact that people are living longer and spending more years in retirement.

“If we were only expected to support ourselves for 7-8 years in retirement as was the case in the 1930s when Social Security was created and using the then-current assumptions that most pension actuaries used, Social Security would still be solvent, pensions would be affordable for most strong, well-managed companies, and personal savings would not need to be north of $1 million per person,” Weber says.

Let’s examine the most common retirement income sources.

Social Security

People like Jan Armani, a 57-year-old office manager in Denver, are dependent on Social Security. When she retires, she plans to use Social Security for monthly bills, and supplementing that with other retirement income for the unexpected. “I’ve worked now for 42 years without any break and I certainly hope Social Security comes through for me,” she says. “Many of my jobs did not have retirement plans so I always counted on Social Security.”

But a funny thing happened to the once-reliable program. It’s simply become a bad numbers game—too many people and not enough money to distribute.

It’s gotten so bad that people don’t trust the system, and wonder aloud if Social Security will even exist much longer. Are their fears justified?

“Yes,” Schmitt says. “The combination of demographics and promised benefits threatens the solvency of the Social Security system.” Projections indicate that Social Security taxes and reserves will be unable to pay full benefits by 2037. “2010 marked the first year that Social Security taxes did not cover benefit payments. Yet Congress lowered Social Security payroll taxes in 2011 and at least through February 2012,” Schmitt explains.

Without radical change—to taxes, to benefits levels or to retirement age—it can’t, and won’t, continue.

That dire situation even has some pondering a once-unthinkable question—should I claim my benefits early? The resounding answer, any reasonable financial expert argues, is no.

In fact, many experts say they not only shouldn’t claim Social Security early, but put it off for as long as you can afford it. The longer you wait, the bigger increase in benefits you’ll receive. A person can take reduced benefits starting at 62, but “those reductions are permanent for your lifetime and are significant,” Weber says.

Others, like Welsh, say Social Security ultimately will be just fine.

“Medicare and Medicaid are a disaster, but with Social Security, we’ve got a fair amount of room to steer this ship right if we just get it right—whether it be extending the retirement age, tweaking some of the contribution rates—but I think there’s going to be something there,” Welsh says. [Read "Most concerned about Medicare future"]

Still, older generations like Armani say they worry more for their children. “I think more about how badly our government is being run currently, which will most likely affect the future for myself and most definitely for my son. If the government is taking money out of our monthly income for our future it should belong to us and only us.”

Pensions

Pensions, too, aren’t what they used to be to retirees. They have really been the “gold-standard” for retirement revenue, Welsh explains, as it’s a dream come true to put nothing in and still get a sizeable return. But it’s just too much of a financial commitment on the part of the employer and that erratic nature of the commitment is problematic, too.

“The reality is the CFO of a big company can’t stand that type of volatility,” Welsh says. “From a funding standpoint, with the sole responsibility resting on the employer’s shoulder and the need to be leaner and meaner in the U.S. economy, pension plans are declining.”

The funded status of pension plans has been on a wild ride since 2008, experiencing major declines in 2008, 2010 and 2011. Those drops were due to the double whammy of declining equity markets and lower interest rates.

401(k)s

Without pensions or a guarantee of Social Security benefits, most people under age 50 use their 401(k) as their main retirement vehicle—due largely to its adoption by employers.

“Employers looking to cut expenses are abandoning costly and inflexible traditional pension plans, for which employers are at risk for funding shortfalls, and instead replacing them with less expensive defined contribution plans due to their more predictable costs,” explains Schmitt.

Still, many participants don’t contribute enough to their accounts, even if they think they do.

“There’s two average kind of account balances—the mean and the median. The mean doesn’t look that dismal—it’s about $75-80,000, but the median is under $25,000,” Welsh says. “Some people think they have done a great job but it tends to be disheartening for some and that’s where we are at as an industry right now. We’re trying to get people to do something and then do it in a sufficient fashion but also tempering that against the reality. Even if you saved a couple hundred thousand dollars, the lifetime annuity on that will be nice, but it’s not going to be what many people think—which is ‘I’ve saved $200,000 and now I can live well forever.’ It’s just not going to work that way.”

Other sources

Of course, there are the old standbys for retirement income: Stocks and mutual funds, insurance and annuities, real estate or inheritance, for instance.

But these methods hardly pay the monthly bills and often are unreliable plans. Investors are weary to invest, for obvious reasons. There’s often fine print associated with financial products such as insurance and annuities and many older people don’t fully understand them. Only about five percent of Americans say rent or royalties will help finance their retirement. And most people don’t have a rich Aunt Ethel that will leave them a good chunk of change to live on. Less than ten percent of workers expect a significant amount of wealth to be left for them—and even if they do expect it, it’s important to remember beneficiary forms are easy to change.

And though more Americans than ever are working part-time to supplement income after they officially retire, it’s not necessarily a good plan to have, experts say. While many workers assume they can return to work, it’s not easy for older workers to reenter the work force. Once unemployed, older workers are usually out of work longer than their younger counterparts, according to the AARP Public Policy Institute.

What can you count on?

So without government programs, your employer or a rich family member to depend on, there’s just one person to depend on: yourself.

This is especially vital information for young workers whose retirement future might be in question most—the ones who, for the most part, spend what they make, are ridden with college debt and don’t have any savings.

But to some extent, trouble can be avoided for both young and old by adjusting expectations, Schmitt says.

“Faced with an erosion of two of the three traditional pillars of retirement security against a backdrop of an unprecedented national debt, it appears that any retirement solution will require individuals’ acceptance of more personal responsibility in saving and investing,” Schmitt says. “Lucky for them, the young have more time to save and invest for the time when they will rely upon their savings for support in retirement.”

Also read "Baby boomers are reaching age 65, but are they actually retiring?"

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