Mark Ahlers

Mar 23 2016

Financial Planning: How Much Will I Need to Save?—Part 3 of 3

Financial Planning for Retirement.
This is the final in a 3-part series on financial planning and social security.

Experts suggest that you will need 75-85% of your pre-retirement income to maintain your lifestyle throughout retirement. What changes in retirement can you make to allow for this 15-25% decrease in your income? Ideally, your mortgage and other debts are paid off. If you have children, they are grown and living on their own. If this is not the case, your income replacement may need to be higher. Another change in retirement that may allow you to live on 75-85% of your pre-retirement income is that you are no longer “paying” into social security (a 7.65% tax on your wages!), and the “expense” of saving for retirement has come to an end.

To achieve your retirement goal, you may need to accumulate savings and investments of 10-12 times your pre-retirement annual income. To accumulate this amount of savings and investments, you should save at least 10-15% of your income every year.

Putting it all together.

Based upon these guidelines, let’s assume we have a soon-to-be retiree earning $40,000 per year.


Pre-retirement income                 $40,000/yr
%of pre-retirement income
needed to maintain current         x 75%-85%
Target retirement income           $30,000-$34,000/yr


Pre-retirement income                 $40,000/yr
Amount to save                                x 10-12
Target retirement savings           $400,000-$480,000


Avg. Social Security benefit        $15,000/yr
Plus 4% withdrawal from
target retirement savings          + $16,000 – $19,200/yr
Retirement income                      $31,000-$34,200/yr


Important Guidelines:

  • 10-15%–target rate of savings and contributions to your savings and investments
  • 10-12x pre-retirement income–target amount of savings and investments at retirement.
  • 4%–the ideal withdrawal rate from savings and investments during retirement.

The Power of Compounding.
Compounding transforms your working money into a state-of-the-art, highly powerful income-generating tool. When your investments generate earnings, those earnings are added to your account and reinvested. Now you have a larger pool of invested money—your contributions plus your earnings—and the opportunity to generate even more earnings on those invested funds.

Increasing the amount you are contributing increases the potential benefit you may realize from compounding. The longer your money is invested, the more you may benefit from the power of compounding. Years of regular savings and contributions, investment earnings, and compounding can help you build the balance you’ll need to see you through your retirement years.

Saving early for retirement is essential.
Let’s assume Joe saves $100 a month for 30 years beginning at age 35. Michelle also saves $100 a month, but only saves for 10 years beginning at age 23. Both Joe and Michelle earn an average of 8% and plan on retiring at age 65.

Saving for retirement early

Who will have more in their retirement account? Michelle’s balance at age 65 will be $236,000 compared to Joe’s balance of $149,000. Why? Because of the impact of compounded earnings! Even though Michelle contributed less, she started earlier and received the benefit of compounded earnings on her investments.

We welcome the opportunity to meet with you for a complimentary review of your goals to make sure you are on the best road for your retirement journey. We invite you to schedule a meeting with one of our experienced financial planning experts by calling 1-800-899-8858 or visiting us online at

View the complete 3-Part Financial Planning for Retirement Series:

Investment products are not a deposit, not FDIC insured, not insured by any federal government agency, carry no bank guarantee, and may go down in value.
Mark Ahlers

About Mark Ahlers

Mark Ahlers is Vice President, Trust Officer at Hills Bank’s Marion location on 7th Ave. Mark’s area of concentration and expertise includes administering portfolios for non-profit organizations (foundations and endowments) and personal trust, as well as financial and retirement planning for individuals. Mark also administers employer-sponsored retirement plans. Mark is a graduate of Briar Cliff University in Sioux City, Iowa. Prior to joining the bank in 2006, Mark worked in the Trust and Wealth Management Division of a Midwest-based bank. Mark can be reached at

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