Source: Social Security Administration.

Are you counting on Social Security to provide most, or even all, of your post-retirement income? If so, you should know that the average monthly Social Security benefit right now is less than $1,300.

Mind you, that's just an average -- and this article shows you how you can get a very accurate estimate of your monthly benefits.

But assuming you're close to average, are you prepared to get by on roughly $16,000 per year?

Let's hear from Jean Setzfand, the vice president of financial security at AARP, about how much of your retirement income you should be counting on Social Security to cover.

In the video, Jean advises using Social Security as a supplement to your retirement income -- not the sole source. She explains that if you make it 30% to 40% of your total income, you'll be using Social Security benefits more or less in the manner they were intended.

Let's see what that means using an imaginary friend of mine, Joe Sixpack, as an example. Joe is about as average as it gets, and he's ready to retire. He can count on about $1,300 a month in Social Security payments. The one area in which Joe exceeded the average, however, was in his saving habits. Taking advantage of his employer's 401(k) match and a couple of index funds, he actually saved a decent amount for his retirement during his career. He now has enough in his 401(k) to make his Social Security payments comprise 43% of the $3,000 in monthly income he calculated that he needs in retirement.

While that's relying a bit more on Social Security than Jean suggested, look at what a difference it makes. Joe has tucked away enough money for a $36,000 yearly "salary" -- more than double the $16,000 average we mentioned earlier. That will make a huge difference in the quality of Joe's post-retirement life.

How can you make up the difference?
Trust me: You can take small steps now that will add up to a giant leap come retirement time. For instance:

  • If you're not contributing enough to get the full employer match in your 401(k), you're leaving free money on the table. There is no better retirement benefit widely available to the American worker than this match. And if you have access to a 401(k) and aren't using it all, well, shame on you.
  • If you don't have access to a 401(k) or other defined-contribution plan, small contributions to an IRA, even if they only earn average investment returns, will add up to incredible amounts of cash over the years. I'll provide a great example below.

I provide other examples in my Emmy-award-winning article "How to Retire Faster."

Another example
In the video, Jean talks about saving to supplement your Social Security income, and her final words in that clip are, "The sooner you start, the better off you'll be."

To which you might answer, "Well, yeah, that's common sense." To which I say, if you knew just how much better off you'd be with even a small head start, you might start (or add to) your savings program today.

For example, a 21-year-old making $3,000 annual contributions will have amassed over $1 million by age 65. We're talking about $125 per paycheck and a modest 8% annual average return during that time. And boom -- he's a millionaire in retirement.

But if this person waits 10 years to get started, he'll only have about half that amount at age 65.

Yes, it's harder to save during those younger, leaner years. But once you understand the power of compound growth combined with just a few more years of saving, you should gladly forgo that $125 each paycheck. You'll hardly miss it.