No matter what our occupations, most of us share a common goal of a comfortable retirement. Almost everyone looks forward to the day when they can retire and enjoy more free time.

And so, the investment decisions we make in preparation for that retirement are crucial.

In this presentation, we’re going to go take a closer look at investing for retirement.

Let’s start with a question: How much will you need for retirement? Are you attempting to accumulate $1 million? Does $2 million sound about right? How about $5 million?

Or do you have a retirement income target? Say, $5,000 a month? $10,000 a month?

When it comes to investing for retirement, having a target amount in mind is critical. If you have no target, you have no way of measuring your progress toward the goal. Perhaps more to the point, you have no way of developing a strategy to pursue that goal.

Without a clear retirement objective, you may be saving too little or taking too much risk.

One survey found 48% of workers have determined an amount they expect to need for retirement. That’s less than half.

But for how long? Many expect retirement to last approximately 20 years. But most financial professionals recommend preparing for a retirement that will last 30 years. That 10–year gap may leave some people unprepared.

Have you attempted to determine the amount of money you would need for retirement? If so, are you preparing for a 20– or 30– year retirement?

Source: EBRI, 2015

When assessing retirement income sources, the Investment Company Institute (ICI) breaks down U.S. retirement assets into five categories—IRAs, defined-contribution plans, government plans, defined-benefit plans, and annuities. Retirement assets total $24.2 trillion, or 36% of all household financial assets. Put another way, Americans have allocated roughly one out of every three dollars to retirement. Contributions to traditional IRAs may be fully or partially deductible, depending on your circumstances.

Distributions from defined-contribution plans and traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 72, you must begin taking required minimum distributions. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal also can be taken as a result of certain other circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.

Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies). The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities are not guaranteed by the FDIC or any other government agency. The earnings component of an annuity withdrawal is taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have fees and charges associated with the contract, and a surrender charge also may apply if the contract owner elects to give up the annuity before certain time-period conditions are satisfied.

Source: Investment Company Institute, 2015

Let’s take a closer look at investing for retirement. An important first step is to assess Me, Incorporated. Think of yourself as a company. What potential sources of income do you expect in retirement? If you’re like many, your sources of income may fall into four broad categories.

The first group is personal savings and investments. This would include any assets you have accumulated that wouldn’t fall into the other three categories. You may also have employer-sponsored plans, traditional IRAs, or Roth IRAs.

Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 72, you must begin taking required minimum distributions.

Contributions to a traditional IRA may be fully or partially deductible, depending on your individual circumstance. Distributions from a traditional IRA are also taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 72, you must begin taking required minimum distributions from a traditional IRA. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal also can be taken as a result of certain other circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.

You also may be counting on real estate—including the equity in your home—to help in retirement. Keep in mind that real estate property values can be significantly affected by economic downturns or changes in real estate pricing. You may have other personal assets as well, such as collectables. Collectables are considered a speculative investment that may not be appropriate for everyone. Speculative investments carry a high level of risk, and when sold, may have little or no value. Consider working with an investment professional to better assess the risks associated with speculative tools.

As you get to know Me, Incorporated, you need to look beyond sources of income. You need to get a good idea of how Me, Incorporated, operates.

Are you a risk taker or are you risk adverse? Are you comfortable with the level of risk necessary to pursue your objectives? If not, it may be more realistic to adjust your objectives.

Are you detail oriented or would you prefer a hands-off approach? Do you want to dig through the financial statements of companies or would you prefer to have a professional do that for you? Keep in mind, however, that there is no guarantee that a professional will not lose money.

Finally, are you a patient, conservative investor or do you tend to be more aggressive in your approach?

All of these are important considerations when investing for retirement.

How did you create your portfolio? Do you follow the pundits or take a more disciplined approach?

Were you influenced by a magazine’s top picks? Have you called into Mad Money and received advice?

Remember, magazines select content to attract additional subscribers and buyers; television shows are trying to boost ratings. Their advice may be incomplete and can easily be skewed by many factors.

A disciplined approach involves adopting and sticking to a sound strategy. It includes selecting investments that are consistent with your goals, time frame, and objectives. And it normally includes diversifying among asset classes. Diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if security prices decline.

Finally a disciplined approach means following your strategy rather than making spur-of-the-moment decisions based on a “hot tip.” Warren Buffett once said, “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”

Once you have analyzed your approach, it’s time to look at your ultimate objective. What’s the growth plan for your net worth? One of your goals may be to make the money that you have working for you today grow to the amount you anticipate needing for retirement.

As the illustration shows, a $500,000 portfolio growing at a hypothetical 6% average annual rate of return would be expected to be worth nearly $1.2 million in 15 years. Is $1.2 million what you’re aiming for?

Keeping your money growing at a 6% average annual rate of return can be a challenging task. In fact, some may even consider investment management a part-time job. Markets may have favorable conditions during some periods but can present challenges during others.

This is a hypothetical example used for illustrative purposes only. It is not representative of any specific investment or combination of investments.

Many consider stocks to be an important component of a sound long-term investment strategy. But stocks can be volatile and, during the past 20 years, have had periods where they have outperformed and underperformed other assets classes. In fact, for the 10–year period ended December 31, 2008, stocks actually lost 28.1%. An investor who held stocks for that 10–year period lost money.

And as the chart shows, an investor who held stocks for the 10–year period ended in 2009 broke even. For this illustration, stocks are represented by the S&P 500 Composite Index (total return), an unmanaged index that is generally considered representative of the U.S. stock market. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.

The chart also shows the long-term performance of bonds. For all of the 10–year periods shown, bonds posted positive gains. Remember, the market value of a bond will fluctuate with changes in interest rates. As rates rise, the value of existing bonds typically falls. If an investor sells a bond before maturity, it may be worth more or less that the initial purchase price. By holding a bond to maturity you will receive the interest payments due plus your original principal, barring default by the issuer. For this illustration, bonds are represented by the Citigroup Corporate Bond Composite Index, an unmanaged index that is generally considered representative of the U.S. bond market.

It’s important to remember that past performance does not guarantee future results. And actual results will vary.

Source: Thomson Reuters, 2016. For the 10–year periods between January 1, 1997, and December 31, 2015.

Let’s take a quick look at a long-term trend chart in an attempt to assess what’s next for bond prices.

As you can see, on December 31, 2012, the yield on the 10–year U.S. Treasury bond was at its lowest level since 1995, before rebounding slightly by the end of 2014. What’s next for bond prices? No one can say for certain. But as you consider various investments, it can be helpful to review long-term trends.

Remember, the market value of a bond will fluctuate with changes in interest rates. As rates rise, the value of existing bonds typically falls. If an investor sells a bond before maturity, it may be worth more or less that the initial purchase price. By holding a bond to maturity you will receive the interest payments due plus your original principal, barring default by the issuer.

Remember, past performance does not guarantee future results. Actual results will vary.

Source: Thomson Reuters, 2016. For the 20–year period between Jan. 1, 1996, to Dec. 31, 2015.

Many investors want to keep a portion of their portfolios in cash or cash alternatives, such as a money market mutual fund or certificate of deposit. When allocating to these cash alternatives, it’s important to understand the role cash plays in a portfolio and to have a perspective on the outlook for short-term interest rates.

The Federal Reserve sets the federal funds rate, which is the interest rate banks and other depository institutions use to lend money to each other overnight. When the federal funds rate is low, the interest rate offered on money market mutual funds and CDs tends to remain low. In December 2015, the Federal Reserve increased rates for the first time in almost 10 years. In March 2016, Federal Reserve Chair Janet Yellen said, “Given the risks to the outlook, I consider it appropriate for the Committee to proceed cautiously in adjusting policy.” In other words, the federal funds rate may remain at comparatively low levels for some time.

CDs are time deposits offered by banks, thrift institutions, and credit unions. They may offer a slightly higher return than a traditional bank savings account, but they also may require a higher amount of deposit. With a CD, your principal is locked. If interest rates rise, you may not be able to take advantage of the higher rates until the CD matures. An early withdrawal penalty may apply. Bank savings accounts and CDs are FDIC insured up to $250,000 per depositor, per institution.

Money market funds typically pay dividends, which may be greater than the interest rate offered by bank savings accounts or CDs. Money market funds seek to preserve the value of your investment at $1.00 a share. Money held in money market funds is not insured or guaranteed by the FDIC or any other government agency. It’s possible to lose money by investing in a money market fund.

Mutual funds are sold by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money. Past performance does not guarantee future results. Actual results will vary.

Source: Thomson Reuters, 2016. For the 20–year period between Jan. 1, 1996, to Dec. 31, 2015.

In 2015 people purchased $229 billion in annuity contracts—including $130 billion in variable annuities and $98 billion in fixed annuities.

Fixed annuities offer a guaranteed payout, usually a set dollar amount or a set percentage of the assets in the annuity. Variable annuities offer the possibility to direct the allocation of premiums between various subaccounts. This gives annuity owners the ability to participate in the potentially higher returns these subaccounts have to offer. It also means that the annuity account value may fluctuate. As you can see, fixed annuity sales jumped in 2015. That’s not surprising, considering more baby boomers are retiring and may be opting for more predictable returns.

Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies).

The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities are not guaranteed by the FDIC or any other government agency. The earnings component of an annuity withdrawal is taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have fees and charges associated with the contract, and a surrender charge also may apply if the contract owner elects to give up the annuity before certain time-period conditions are satisfied. Variable annuities are sold by prospectus, which contains detailed information about investment objectives and risks, as well as charges and expenses. You are encouraged to read the prospectus carefully before you invest or send money to buy a variable annuity contract. The prospectus is available from the insurance company or from your financial professional. Variable annuity subaccounts will fluctuate in value based on market conditions and may be worth more or less than the original amount invested if the annuity is surrendered.

Source: Insured Retirement Institute, 2016.

Let’s take a closer look at annuities.

An immediate annuity can begin making payments to the contract holder immediately. Deferred annuities can defer payments to a specific date in the future. Remember, the interest portion of the immediate fixed annuity is subject to taxes. You also will have to pay taxes on the growth of the single-premium deferred annuity.

Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies). The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities are not guaranteed by the FDIC or any other government agency. The earnings component of an annuity withdrawal is taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have fees and charges associated with the contract, and a surrender charge also may apply if the contract owner elects to give up the annuity before certain time-period conditions are satisfied.

Variable annuities are sold by prospectus, which contains detailed information about investment objectives and risks, as well as charges and expenses. You are encouraged to read the prospectus carefully before you invest or send money to buy a variable annuity contract. The prospectus is available from the insurance company or from your financial professional. Variable annuity subaccounts will fluctuate in value based on market conditions and may be worth more or less than the original amount invested if the annuity is surrendered.

Let’s take a look at what happens when a growth plan becomes an income plan. As the illustration shows, a $500,000 portfolio generating a hypothetical 6% annual rate of return grew to nearly $1.2 million after 15 years.

How much income could $1.2 million potentially generate?

When the account holder reaches 67, the portfolio could generate $50,000 in income. In subsequent years, assuming the portfolio continued to generate a hypothetical 4% annual rate of return, the account holder’s income could increase by 3% each year. For example, when the account holder reaches 68, the portfolio could generate $51,500.

After 23 years, at age 90, the account holder’s annual income would have increased to nearly $100,000. A total of $1.7 million would have been taken in income. And an additional $425,000 would remain for heirs.

This is a hypothetical example used for illustrative purposes only. It is not representative of any specific investment or combination of investments.

As you build your retirement portfolio, it’s important to remember asset allocation. A landmark study found that 91.5% of an average portfolio’s performance could be attributed to asset allocation. In other words, how the money was allocated among different asset classes turned out to be more important than which specific securities were purchased.

So how is your money allocated? Are you comfortable with the outlook for each asset?

If you don’t know how your retirement funds are allocated, it is hard to know whether they can help you pursue your retirement objectives.

Remember, asset allocation is an approach to help manage investment risk. Asset allocation is not a guarantee against investment loss.

Source: Brinson, Singer, and Beebower, “Determinants of Portfolio Performance II: An Update,” Financial Analysts Journal, May/June 1991

When investing for retirement, sometimes it’s encouraging to listen to what others are saying. Where some see challenges, others see opportunities.

Warren Buffett said it this way: “You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t …”

When it comes to investing for retirement, it’s critical to understand the market environment and assess the potential for each asset class within your portfolio.

There are a number of criteria to keep in mind as you consider investing for retirement. Here are some scenarios that might be familiar:

Anthony and Selena have a growing family, and wonder, “How much should we be setting aside in our employers’ qualified retirement plans?”

Dave and Christine are nearing retirement. They ask, “Are stocks appropriate for people who are in their 60s?”

Rebecca is a widow who wants to know, “What role can annuities play in my retirement portfolio?”

Isaac is a business owner who likes to do research online and likes to take a hands-on approach to his retirement plans. He asks, “If short-term interest rates remain low, should I consider a different approach to my asset allocation?”

All of these are great questions, and we are here to help with the answers. It’s important to remember that individual recommendations will vary with each situation.