After years of writing about personal finance, few things surprise me. But when the 2009 Retirement Confidence Survey came out earlier this year, I saw something that left me dumbfounded.

What wasn't all that surprising to me was that only 54% of Americans surveyed were somewhat or very confident that they'll have enough money on which to live comfortably in retirement, down from 61% just a year ago and 70% two years ago. It was a little surprising that while 75% said they had saved for retirement, only 12% had saved more than $250,000 (and among those ages 55 or older, only 26%).

Here's what shocked me, though: When asked how much money they'll need for retirement, the sum that got the most support was "less than $250,000." In fact, 70% thought that they'll need less than $1 million. Let's think about that a little, shall we?

Running numbers
Let's be generous and assume that you retire with a nest egg of $600,000. That would give you only a $24,000 annual payout, if you withdraw the 4% recommended in our Rule Your Retirement newsletter (adjusting it for inflation each year). You'd better be expecting considerable income from other sources, such as Social Security or a pension, because even today, it's hard to live on $24,000. And with Fidelity estimating that the average retiring couple today will need around $240,000 just for health-care expenses, you're not leaving yourself much wiggle room if something goes wrong.

Using that 4% figure, if you want $50,000 in annual income in retirement, you should aim for a nest egg of around $1.25 million. (Just multiply your desired income by 25 to get the needed nest-egg size.) You may be able to get there by working a few more years, or just cranking up your savings. Once you approach retirement, you might spend some of your nest egg to buy yourself a pension.

Instead of or in addition to that, you might generate income for yourself via dividend-paying stocks -- ideally, ones you expect to grow in value, giving you a one-two punch. Check out this possible income scenario, for example, if you had $100,000 divided among eight stocks:

Company

Dividend Yield

Annual Payout

Qwest Communications (NYSE:Q)

7.4%

$925

Altria (NYSE:MO)

6.7%

$838

Pitney Bowes (NYSE:PBI)

6.3%

$788

AT&T (NYSE:T)

6.0%

$750

Lorillard (NYSE:LO)

5.1%

$638

DuPont (NYSE:DD)

4.9%

$612

NYSE Euronext (NYSE:NYX)

4.6%

$575

ConocoPhillips

3.9%

$387

Grand Total

 

$5,613

Source: Yahoo! Finance.

Not bad, eh? To see what you'd get if your invested nest egg were $400,000, just multiply the total above by four, and you'll be looking at an annual payout of more than $22,400.

Good news
Fortunately, not all of us will need $1.25 million with which to retire. We may have pensions coming to us, or other expected income. And who knows -- by the time we retire, health-care costs might have been brought under control. But I hope it's clear to you that for most of us, $250,000 isn't going to go very far in retirement.

To give you an idea of what $250,000 will get you in a lifetime income annuity, I recently ran the numbers on an online calculator for a 65-year-old woman and got monthly income estimates around $1,500, which would come to $18,000 per year. But that amount can vary greatly depending on which options you choose, such as only taking the income for a set number of years, or leaving some money to heirs.

So don't be a victim of retirement killers in this brutal environment, and remember that it's never too late to salvage your retirement. Be smart about your retirement planning and investing and you'll have a much more enjoyable retirement.

Need help saving more? Get Chuck Saletta's advice on how to make a million dollars.

This article was originally published June 8, 2009. It has been updated by Dan Caplinger, who owns shares of Altria. NYSE Euronext is a Motley Fool Rule Breakers pick. Pitney Bowes is a Motley Fool Income Investor selection. Try our investing newsletters free for 30 days. The Motley Fool is Fools writing for Fools.