Can you answer this key retirement question?

How much retirement income can your savings generate? This is a critical question, and answering it correctly can help you estimate if you have enough money to retire. Get it wrong, however, and you might retire too soon, increasing the odds that you'll run out of money during your retirement.

A recent survey by New York Life Insurance Co. shows that most Americans don't know how to turn their hard-earned savings into a steady stream of income when they retire. More than three-quarters (77 percent) of Americans over age 40 didn't know of a safe rate at which they could withdraw from their savings -- one that would help ensure that their savings would last for as long as they live. Half of Americans (58 percent) overestimated the safe withdrawal rate, pegged at 4 percent for a typical retiree.

Almost one-third (31 percent) of Americans are wildly overoptimistic, believing they can spend as much as 10 percent of their savings each year. At that rate, based on historical investment returns, retirees run the risk of running out of money in 11 years or less, whereas there's a very good chance they'll live many more years than that.

The biggest planning mistake you can make is thinking of your retirement savings as a checkbook you can use as you see fit to pay for your ongoing living expenses. When this happens, many people spend their savings too rapidly, with the unfortunate result of experiencing "money death" before physical death.

A better approach is to consider your savings to be a generator of a monthly retirement paycheck, then spend no more than that monthly check. You'll set up the paycheck generator so it has a realistic chance of lasting for the rest of your life, no matter how long you live.

Understanding what a safe withdrawal rate is from your invested savings is just one way to generate your retirement paycheck. You can also produce one by investing your savings and withdrawing just the interest and dividends, or by purchasing an annuity from an insurance company.

The New York Life survey highlights a serious flaw with most 401(k) plans: They don't offer retiring workers the ability to choose among a menu of reasonable methods to convert their savings into income. Such a menu could include:

• Systematic withdrawal programs that invest assets and pay a specified amount each month or quarter
• Annuities
• Temporary payouts to enable optimizing Social Security benefits

Using such an approach, a retiring worker could divide his funds among one or more of these retirement paycheck generators, according to his goals and circumstances. Ideally, the 401(k) plan sponsor would supplement the menu with a communications program that helps workers make informed decisions.

There's plenty of demand for such a program of retirement income. The New York Life survey shows that more than half (58 percent) of all Americans are interested in learning how to turn their savings into lifetime income, and almost two-thirds (64 percent) are interested in creating their own pension-like income in retirement.

Another recent survey from Transamerica confirms this result. More than half (53 percent) of the retirees who responded to this survey would have liked information and advice from their employers on how to achieve their retirement goals. Yet almost two-thirds (63 percent) received no help from their employer with any retirement planning task. Fewer than 10 percent of retirees say their employer offered any financial advice, seminars or other methods of helping with the transition to retirement.

Financing a long life in retirement is a serious challenge that deserves careful thought and attention from many stakeholders -- employers, financial institutions, workers and retirees. The New York Life survey should serve as a wake-up call.