Millions of Americans rely on Social Security for the lion's share of their retirement income, and that's a problem given that the average monthly Social Security check will be just $1,360 this year. Will Social Security leave you shortchange in retirement? Here's what you need to know about Social Security and how to get yourself on track so that you won't have to rely so heavily upon it.

Heavy lifting

According to the Social Security Administration, roughly 61 million Americans collect Social Security checks every month, and about 68%, or 41 million, of those recipients are retired Americans who contributed to Social Security over their lifelong career.

Unfortunately, millions of those Americans retirement savings have proven inadequate to cover their monthly expenses, and as a result, 61% of them rely on Social Security for more than half of their income in retirement, and 33% of beneficiaries depend on it for 90% or more of their income.

That's scary, because the Bureau of Labor Statistics (BLS) reports that the average over-65 household spends $44,664 per year, which is significantly more than the average Social Security payment of $1,360 per month, or $16,320 per year.

Don't get caught by surprise

The amount Americans receive in Social Security varies widely, and depends upon your inflation-adjusted annual income over your career. That means it's unlikely that you will receive the average amount paid out to recipients. Having said that, you might not want to run the risk of overestimating how much you will get from Social Security when you retire.

As you can see in the following chart, Americans typically bring home between $800 and $1,800 per month, and that's still far short of the BLS spending figures.


Data source: Social Security Administration.

Further, there's a risk that Social Security reform could reduce payments in the future, or delay them. According to Social Security's trustees, the trust fund that's bridging the gap between current payroll tax revenue and the program's outlays will run out of money in 2034, prompting a 25% across-the-board cut to monthly benefits. Unless Washington takes action, that could mean substantially smaller payments just when you might need them most.

Taking action

You can estimate your monthly benefit at Social Security's website, and if that estimate suggests that you might end up relying significantly on Social Security in retirement, then now is a good time to ramp up your contributions to tax-advantaged retirement plans, such as 401(k) plans. 

Overall, Americans are contributing roughly 8% of their income to 401(k) plans every year, however, a contribution rate that's closer to 15% is more likely to guarantee future financial security.

For example, a 40-year-old earning $40,000 who contributes 8% of her income to investments that return an average of 6% annually would have a $175,785.90 nest egg at age 65. Not bad, right? Now, imagine if she invests 15% per year in that same investment. In that scenario, she could end up with $329,187.07, or $153,402 more, at age 65.

Heading in the right direction

In 2017, workers can contribute up to $18,000 of earnings to their 401(k) or a 403(b) plan, and if you're 50 or older, an additional $6,000 can be set aside, for a total annual contribution of $24,000 this year.

If you're in a position to contribute that much money, fantastic. However, if you're not, don't be discouraged. Small annual increases in your contribution rate can pay off over time, and many companies offer 401(k) or 403(b) plans that include auto-escalating features to make increasing contributions every year easy. For Americans worried that Social Security won't cover their retirement expenses, taking advantage of this feature now could end up being downright savvy.