Social Security serves as a critical income source for millions of seniors today, but those benefits have limited buying power. These days, the average recipient collects roughly $1,500 a month, or $18,000 a year, and while that income is helpful, it's certainly not enough to support a comfortable lifestyle.

It's therefore disturbing to read that 37% of baby boomers anticipate that Social Security will be their primary source of income in retirement, according to a recent Transamerica survey. And given the fact that the program is facing its share of financial woes, those who expect to depend heavily on it may be in for a late-in-life shock.

Social Security just isn't enough

Social Security will generally replace about 40% of the average worker's pre-retirement income. Most seniors, however, need a lot more money than that to maintain a decent standard of living. In fact, as a rule of thumb, workers today are told to aim for 70% to 80% of their former wages in replacement income during retirement, so those who expect Social Security to be their primary income source risk falling dangerously short.

Older man reading a book in bed

Image source: Getty Images.

Furthermore, Social Security may be forced to cut benefits once its trust funds are depleted. Those trust funds function as a savings account of sorts and will be needed in the coming years when the program's financial obligations exceed its incoming revenue. Social Security gets the bulk of its funding from payroll taxes, but because so many baby boomers will be leaving the workforce in short order, the program will have a revenue shortfall that it will need its trust funds to compensate for. Once those funds are out of money, which, according to the program's Trustees, could happen as early as 2035, Social Security may need to implement benefit cuts in excess of 20%.

Clearly, relying on Social Security as a main income source is not a good idea. A better bet is to save independently for retirement and use Social Security to supplement 401(k) or IRA withdrawals. But unfortunately, baby boomers who haven't been saving all along don't have much opportunity to make up for lost time. In fact, the median savings balance among baby boomers is just $144,000, which may seem like a lot of money at first glance, but is woefully inadequate over the course of what could be a 20- to 30-year retirement (possibly longer).

As such, near-retirees who don't have a lot of savings and are banking on Social Security may need to adjust their current plans. That could mean working longer to boost savings, getting a job during retirement, or moving to a low-cost area of the country where those benefits can be stretched further.

Younger workers should also take a lesson here. Those who still have many years to save in a 401(k) or IRA should do just that. While Social Security is in no danger of going away completely, those benefits won't suffice in sustaining seniors, especially if they're slashed in the not-so-distant future. And while it may be too late for some baby boomers to compensate, younger workers can take savings matters into their own hands to avoid financial hardships later in life.