How To Optimize Your Retirement Investing Priorities

The law in the United States is designed to encourage each working citizens to save for his or her own future. Through tax advantages, there are subtle incentives for investing in certain types of accounts. These incentives encourage financial literacy, boost use of the economic machine of the financial industry, and shift the burden of supporting the elderly from corporate pensions to the public.

Regardless of whether you think this is a good approach to supporting a population with an expanding lifespan, this is today's environment. If you envision a future where you can do what you'd like to do with your life, unfettered by financial constraints despite a lower or zero income from work, you have to get on board with the concept of saving and investing for yourself.

There's nothing stopping anyone for saving for their future by storing cash - whether in a mattress or in a safe. It's more beneficial to do something else with that money, however, so you don't lose purchasing power due to inflation and so you aren't exposed to a loss in the event of a burglary. Rather than hoarding cash for retirement, take advantage of the various incentives that will help your money grow.

Because different types of retirement accounts have different levels of tax advantages and other benefits, it helps to know which should be the highest priority. Don't miss a great opportunity to allow your money to grow as strong as possible in any investment.

Keep in mind I am not a financial planner or adviser. These thoughts come from my own analysis and thoughts about retirement investing. You can get personalized advice and suggestions by speaking with a financial adviser. I can't make your decisions for you.

Priority 1: 401(k) account with (or up to) an employer's matching contribution

The 401(k) account itself allows you to deduct your contribution from your taxes, so you owe less to the government in the years you're saving for retirement. Your investments in the 401(k) grow tax-free. You only pay taxes when you withdraw your money from the account, when you are possibly in a lower tax bracket (although that is a major assumption about the future).

Even better than these tax advantages are incentives from employers. Many employers offer some type of matching arrangement. In one such arrangement, the company would match your 401(k) contribution dollar for dollar up to a certain amount. That amount may be a percentage of your salary like 3 percent. With this benefit, if you invest 3 percent of your $50,000 salary, you save $1,500 for the future and your employer gives you an additional $1,500.

That immediately doubles your money. You cannot ignore a 401(k) matching contribution because there is nowhere else you can get an immediate 100 percent return. This benefit becomes less valuable once you start contributing beyond the limit of your employer's matching contribution. And if your employer does not match anything, you may want to skip this step entirely, because we will come back to the 401(k).

Priority 2: Roth IRA

While investing with a traditional 401(k) presupposes you will be in a lower tax rate during retirement, there's a good chance that is not going to be a correct assumption. There are some forces working towards lower income tax rates in retirement. Social Security benefits will likely be lower decades in the future, reducing your income. Other income from your investments will likely be long-term capital gains, today taxed at a lower rate.