Countless seniors rely on Social Security to pay the bills in retirement. But those who are planning to use those benefits as their sole source of retirement income may be in for a rather harsh reality check.

The average monthly Social Security benefit isn't enough

The average monthly Social Security payment this year is $1,404. That figure accounts for the 2% cost-of-living increase that recipients were given for 2018. Now when we multiply that number over 12 months, we arrive at an annual income of just $16,848.

Closeup of serious senior male


Let's stop for a minute and process that. It's estimated that the average healthy 65-year-old today will spend an estimated $200,000 on healthcare over the course of retirement. If we assume a 25-year retirement, that's $8,000 a year, which means that anyone aiming to exist on Social Security alone would essentially be left with a mere $737 a month to cover his or her remaining bills. And frankly, that's just not going to happen.

One critical mistake workers of all ages make year after year is running with the assumption that their Social Security benefits will manage to sustain them in retirement. But that's just not realistic. In a best-case scenario, Social Security can replace about 40% of the typical worker's previous income (and by "best case," we're talking no future benefits cuts, which, unfortunately, aren't yet off the table). Most seniors, however, need a good 80% of their former earnings to cover their retirement costs.

And that leads to another common retirement myth: that you'll spend significantly less as a senior than you did during your working years. Not only does healthcare typically increase for retirees, but those who own homes are apt to spend more over time on things like property taxes and maintenance, both of which have a sneaky way of increasing. And let's not forget the fact that a good 30% of seniors don't manage to pay off their mortgages before they retire, which means they don't get a break on that expense, either.

In fact, for many seniors, the only cost that actually ends up decreasing in retirement is commuting. Most others inevitably climb or stay roughly the same unless major lifestyle changes are made. Now if you're somehow managing to survive on $16,848 a year at present, more power to you. But if that figure represents a major pay cut, then let this be your warning: Start saving now for the future, even if it means postponing retirement until you've managed to amass some sort of nest egg. Otherwise, you're liable to struggle during the most financially vulnerable stage of your life.

Ramping up your savings efforts

If you're one of those folks who planned to live off Social Security alone in retirement, now's your chance to avoid resigning yourself to many, many years of poverty. As long as you have the option to work, continue doing so until you've accumulated a decent pile of savings.

Of course, if you're a younger worker with several decades on the job ahead of you, you have more than enough opportunity to catch up. Older workers have more of a challenge, but things aren't hopeless, especially for those with access to a 401(k). That's because the annual contribution limits for employer-sponsored plans recently rose to $18,500 for workers under 50 and $24,500 for those 50 and over. This means that if you're 60 years old with no savings but are willing to max out your 401(k) for eight years, you stand to retire with close to $200,000, and that's without accounting for investment growth.

Even if you can't max out a 401(k), or don't have access to one in the first place, saving some amount per year is better than nothing. IRAs, for example, allow for annual contributions of up to $5,500 for workers under 50 and $6,500 for the 50-and-over set. If you max out the latter for 10 years, you'll have $65,000 in time for retirement, which isn't a ton, but it's far better than attempting to live off Social Security by itself.

Of course, if you're a younger worker with time on your side, you don't need to get crazy about maxing out either type of retirement plan -- meaning, if you can do so, great, but you'll still come away with a decent nest egg if you save smaller amounts consistently over time. For example, if you're 40 years old with a goal of retiring at 67 and you set aside $300 a month consistently over that 27-year period, you'll end up with $268,000, assuming your investments generate an average annual 7% return (which is actually several points below the stock market's average). Incidentally, that's a good $100,000 more than what the average household nearing retirement has in savings today.

Know that Social Security has its limits

There's nothing wrong with factoring Social Security into your retirement plan. Quite the contrary -- now that you know what the average beneficiary receives today, you can use that number as a baseline in your own calculations. Just don't make the mistake of assuming you won't need any money outside of what Social Security provides. As you can see, the typical senior today isn't collecting nearly enough to get by without another source of income. And the sooner you realize that, the better your chances of upping your savings game before it's too late.