Paranoia is sweeping an entire generation, and it’s all about the fear of waking up broke in our 80s.

(Spoiler Alert: I’m going to show you why it doesn’t have to be that way…)

Most baby boomers are coming to the painful realization that retirement isn’t going to be about sleeping in late and crossing items off a bucket list…

[ad#Google Adsense 336×280-IA]Rather, if you count retirement as 20 to 30 years of unemployment… the reality of what decades without a job means becomes painfully clear.

But if you haven’t completely ignored funding your 401(k) or IRA, and you can stick it out to age 70 in the workforce, the news is actually better than you might think.

Even if you’ve put off any kind of retirement funding, it is not too late to do something to improve your lot.

The fact is, if your health allows you to work until age 70 and you manage the last five years of employment properly, it’s likely your prospects for a decent retirement can be significantly improved.

Imagine you’re a 65-year-old who has done an okay job with their retirement savings and has $250,000 put away. Not a fortune, but enough – and, if properly managed, it could do more to alleviate your retirement fears than you might think.

If you use the 4% rule and withdraw 4% from your investments every year, you end up with $10,000 in income the first year. That amount should increase each year due to the inflation rate.

When you add the $2,300 from your monthly Social Security Administration benefit at your full retirement age – 65 or 66 – you have a tidy sum of $37,600 a year.

Not a fortune, but if you don’t have a huge mortgage obligation, most of us can survive and even have a little fun with that amount.

But here’s where taking advantage of our longer life expectancies and working just five years past your full retirement age really kicks this number in the pants… to the tune of a 77% increase in income.

If you can max out your 401(k) contribution ($2,000 a month) for those five extra years through age 70 and get an average return on your portfolio of 7% a year for the same period, you’ll make a huge leap in your lifestyle.

With a growth factor of 7% – which seems very reasonable in the current market – your 401(k) at age 70 should sit at around $497,000.

But it doesn’t stop there…

Because now, of course, you also qualify for the maximum SSA benefit. Let’s assume a salary of $120,000, which brings the SSA benefit to about $3,900 a month, or $46,800 annually.

So, $46,800 plus 4% annually of $497,000 (or $19,914) just kicked us into the very livable area of $66,714.

A simple final five-year plan will give you a 77% increase in income over the amount you would get at the full retirement age of 65 or 66, and you will be replacing 55% of your preretirement income.

And that’s without considering the tax advantage of your SSA benefit.

As we discuss full retirement age, I should point out that taking your SSA benefits at 62 is the single biggest mistake you can make. The amount is pitiful; it averages about $1,300 a month. No one who is physically capable of working should even consider calling it quits that early.

Moving on, let’s consider five more years of work for someone not making a salary of $120,000 and who does not have $250,000 saved for retirement.

The vast majority of people don’t make $120,000 a year; $65,000 is much more realistic. And a large percentage of us over-50 types have something closer to $50,000 saved for retirement.

Furthermore, putting away $2,000 out of a gross pay of about $5,400 a month ($65,000 a year) is not doable.

So instead of $2,000 a month, let’s use 15% of your gross as a contribution to your 401(k): $9,750 a year. That’s $812.50 per month contributed to your 401(k), over five years, with a 7% growth factor.

With five more years of work, your $50,000 becomes $129,000 at age 70.

A 4% withdrawal from $129,000 is $5,160 a year – or $430 a month – plus, at age 70, your monthly SSA benefit (if you earn $65,000 the last five years you work) is $2,877.

That adds up to $3,307 per month.

Now I know that’s not huge. But consider what you’ll have if you take the early out… or do nothing.

Once again, let’s assume you have $50,000 saved for retirement and stick to a 4% annual withdrawal rate. That leaves you with $2,000 in annual income from your retirement savings, or about $166 per month. Choosing to check out at age 62 after averaging $65,000 income for the last five years you work gives you the monthly SSA benefit of $1,300.

That’s a whopping $1,466 a month, just below the poverty level for a couple!

On the other hand, stick it out until age 70 and contribute just 15% of your gross for the last five years, and you will see something in the area of a 117% increase in income.

Not a fortune, I know… but a heck of a lot better than living your last 20 or 30 years in poverty.

And without considering the SSA tax-free benefit, $3,307 is a 61% replacement rate from the income you earned prior to retirement.

I don’t care how bad your situation might look now. A realistic five-year plan can make a huge difference in how you spend your golden years.

Don’t retire at 62. Shoot for 70!

Max out your contribution to your retirement plan… now!

And the longer you do that, the better the picture looks.

Starting this plan even sooner, at age 60 for example, and following it for 10 years drives your income way, way up.

I don’t care how badly you’ve dropped the ball so far, you still do not have to wake up broke in your 80s.

Good investing,

Steve

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Source: Wealthy Retirement