For most of us, Social Security payments just aren't going to cut it in retirement. The average monthly check from the government agency is right around $1,500, which is a decent start, but it won't likely cover all of your expenses. With company-sponsored pensions going the way of the dodo, though, retirees can't count on them either. If you're hoping for worry-free retirement income, you'll have to make much of that happen yourself.

The good news: It doesn't take a fortune to generate recurring investment income of $1000 per month, or more. It just takes some effort and planning now -- the sooner, the better. Here are five things to consider.

Written retirement plan lying on a desk.

Image source: Getty Images.

1. Invest with taxes in mind

During your working years, it's generally better to use tax-deferred retirement accounts to grow your nest egg. Just bear in mind that with a few exceptions like a Roth IRA, withdrawals of cash (or even stock) from a retirement account can create a tax liability. Plan your portfolios accordingly.

In the same vein, although tax laws are subject to change, not all dividends are necessarily taxed the same. Regular dividends, or ordinary dividends, are currently taxed like income: taxed at higher rates the more you earn. Qualified dividends, on the other hand, are currently taxed at capital gains rates, which are usually lower.

If you plan on working later in life or are going to enjoy significant income from your investments, these little details matter in a big way down the road.

2. Plan a transition from growth to income

Dividends may be reliable from one year to the next, but unless you're starting out with a small fortune, they're not going to drive enough growth to create a portfolio capable of generating $1,000 worth of monthly income.

The figures vary somewhat from one source to the next, but on balance, around one-third of the market's total returns come from dividends. That proportion grows dramatically when those dividends are reinvested, but one reality remains clear: To reach the proverbial finish line with enough cash, you're going to also need the kind of growth that only true growth stocks can offer.

It's easier said than done. While dividend income is predictable, the value of growth stocks can be suppressed for years at a time. Investors can't simply swap out their growth holdings for dividend payers the day they retire. Exits of growth names will ideally take place at their peaks, and income stocks should be purchased when their yields are relatively high.

3. Dividend growth is as important as current yield

Stepping into an above-average yield when the capital is available isn't necessarily the only consideration, of course. Some companies increase their annual payouts at a much faster clip than others, making a seemingly sub-par yield the smarter long-term dividend pick.

Take JPMorgan Chase (JPM 2.51%) for instance. Its current yield of 2.6% is respectable and in line with its peers. But it's nothing especially thrilling.

There's an important detail about JPMorgan's dividend that's easily overlooked, though. The big bank raises its payout in a big way every year. The current quarterly dividend of $0.90 is nearly three times greater than its payout of $0.32 per share 10 years ago. That's a compounded annual growth rate of nearly 11%, easily outpacing inflationary pressures as well as outpacing similar companies' dividend growth. Even if you're not ready to start buying these dividend growers, it's not too soon to put these names on your radar.

4. Find a reasonable balance of proven dividend names

That being said, superior payout growth doesn't necessarily mean much if a company can't (or won't) keep making those payments in tough times. JPMorgan certainly didn't. While its 10-year track record is impressive, the company practically discontinued its dividend in 2010 when the subprime mortgage meltdown rocked the entire financial sector. Consumer staples retailer Walmart (WMT 0.46%) may not boast the same pace of payout growth that JPMorgan has in its recent past, but the big-box store has upped its dividend in each of the past 47 years.

Yes, this is a conundrum. Compromises may have to be made, although not as many as you might fear. Smart investors will own a diversified portfolio of dividend-paying companies, holding some that grow their payouts in a big way when the economy is strong and others that remain capable of modest dividend growth regardless of the environment.

5. Think outside the stock box with REITs and BDCs

Most investors will seek out familiar names to fuel their dividends, but there are lesser-known choices with better yields. Real estate investment trusts, or REITs, are an easy way to own a piece of a rental real estate operation, while business development companies, or BDCs, allow you to participate in loans made to small but growing companies.

Prologis (PLD -1.15%) is a great example of why REITs are worth a look. Fellow contributor Matthew DiLallo explained recently how this company's logistics-focused portfolio of properties puts it at the intersection of e-commerce's explosion and the warehousing needed to support the world's online shopping. There's far more demand than competitive supply for these kinds of properties.

Business development companies are a slightly different story. Rather than owning real estate, BDCs offer loans to -- or sometimes enter equity-based partnerships with -- young companies too big to borrow from the local bank and too small for the public bond market. Payouts can be huge. Business development company Prospect Capital (PSEC -1.10%), for example, currently sports a yield of 10.8%.

The catch: With most REITs and BDCs, it's all about the income -- capital appreciation isn't a priority. For income-seeking investors though, that's okay.

Start planning now to collect dividends later

But how much will you need to realistically generate $1,000 worth of monthly investment income once you retire? It depends on how you're willing to invest once you're done working, but it may not require as much capital as you might think.

At the S&P 500's current average dividend yield of 1.5%, a portfolio of $800,000 would do the trick. If you're not going to be anywhere near that figure though, don't sweat it. Not only is the current average well below the long-term average yield of 1.9%, both figures are dramatically lowered by stocks within the S&P 500 that don't pay a dividend at all. The historical average yield of names that pay regular, reliable dividends -- like the Dividend Aristocrats -- is actually closer to 3%, and it's 2.4% for S&P 500 names that aren't Dividend Aristocrats. At yields in that range, $400,000 worth of dividend stocks would do the trick.

Whatever opportunities are available as your retirement date approaches, know that the shift should be more of a planned process and less of an instantaneous event.