Countless seniors depend on Social Security to pay their bills in retirement. But many soon-to-be and current retirees rely on the program far too heavily for their own good. According to the National Academy of Social Insurance, 65% of beneficiaries get the majority of their retirement income from Social Security, and it's the sole source of income for almost 25% of those 65 and older.

The problem with banking on Social Security is that it was never designed to cover retirees' living costs in full. Those benefits, in fact, will only replace roughly 40% of the average worker's previous income. But since most people need 70% to 80% (or more) of what they formerly earned to sustain themselves in retirement, failing to save independently is a seriously dangerous move.

Younger couple working at a computer

IMAGE SOURCE: GETTY IMAGES.

Thankfully, younger Americans are overwhelmingly realistic about Social Security. In a just-released Merrill Lynch study, millennials aged 25 to 39 said that they expect 65% of their retirement income to come from personal, independent sources, leaving just 35% to stem from Social Security benefits. Baby boomers, by contrast, are still counting heavily on Social Security to make ends meet. The average worker aged 52 to 70 expects only 40% of his or her retirement income to come from savings or other personal sources and 60% to come from Social Security.

Gen Xers aged 40 to 51 fall somewhere in the middle. They anticipate that 55% of their retirement income will come from personal sources, and while that's closer to the mark, it still implies an inflated reliance on Social Security. Given that future beneficiaries may see a decrease in Social Security payments if nothing is done to fix the program's current woes, millennials are clearly the closest to having the right idea -- save independently for retirement or risk running out of money in the future.

Where is Social Security headed?

Current workers can rest easy -- despite the rumors hinting at Social Security's demise, the program isn't going away. That said, future beneficiaries could see a reduction in payments if funding for the program isn't increased. In recent years, Social Security has been paying out more money than it's been collecting in tax revenue, and starting in 2019, the program will need to start tapping its trust funds to keep up with benefits. Those trust funds, however, are expected to run dry by 2034, and once that happens, incoming taxes will only produce enough revenue to pay about 79% of expected benefits. This means that while soon-to-be beneficiaries should only expect Social Security to replace about 40% of their pre-retirement income, future beneficiaries might only collect enough to replace 30% of their previous earnings.

Start saving now

The good news is that millennials seem to understand the importance of saving independently for retirement. The bad news is that 42% haven't begun doing so. But if there's one thing younger Americans have on their side, it's time, and if you're one of them, the sooner you start saving, the more likely you'll be to keep up with your living costs in retirement.

Even if you don't have a ton of money to contribute to a retirement account, if you save small amounts consistently over time, you'll eventually grow your savings into a larger sum thanks to the power of compounding. The following table shows how much money you stand to accumulate if you start investing $250 a month at various ages:

If You Start Saving $250 Per Month at Age:

Here's What You'll Have by Age 65 (Assumes an Average Annual 8% Return):

25

$777,000

30

$517,000

35

$340,000

40

$219,000

45

$137,000

TABLE AND CALCULATIONS BY AUHTOR.

As you can see, 40 years of compounding allows you to turn $120,000 in savings ($3,000 a year x 40 years) into more than six times that amount. But the longer you wait to start saving, the less opportunity you'll have to benefit from compounding. That said, even older workers have a shot at accruing some decent savings to help pick up Social Security's slack -- they just need to get moving.

Another thing to note is that the above calculations assume an average yearly 8% return, which is something you're only likely to achieve if you stick to aggressive investments like stocks. Now if you're close to retirement, stocks can be a dangerous choice, but if you start saving in your 20s, 30s, 40s, or even 50s, you should theoretically have enough time to ride out the market's ups and downs and still come out ahead.

Even if Social Security somehow remains stable over the next 100 years, those benefits still won't be enough to cover your living costs in full. The sooner you accept that and take steps to compensate independently, the more financially secure you'll be when retirement rolls around.

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