Even with income-producing investment at their disposal, choosing to spend only the income from investments without touching principal may not be a realistic possibility for most retirees, except for those who have an awful lot of wealth. So the only alternative is to take a total return approach, which means periodically invading principal to meet living expenses. This may actually be a safer approach than over-allocating an income portfolio to higher-yielding (and riskier) investments in the quest for yield.

But even with their best efforts, today's retirees may find it difficult to generate a sufficient current income stream that is also sustainable without taking on an excessively risky portfolio profile. In such cases, working longer is likely going to be part of the solution.

It's not an appealing prospect, but T. Rowe Price's Christine Fahlund recently presented some research that may take the edge off. T. Rowe found that additional retirement plan contributions once you're close to traditional retirement age do not add a lot to your overall portfolio. So one compromise for those in this predicament is to keep working, but stop making additional retirement plan contributions and instead spend that extra money on things like vacations with the kids and grandkids. By keeping the job awhile longer, these folks can also defer taking Social Security and investment drawdowns.