It’s a rare newbie investor who has the financial wherewithal–and foresight–to hit the ground running on a retirement-savings plan, making the maximum allowable IRA and 401(k) contributions at the same time she’s getting her career off the ground.
Instead, most investors tiptoe into retirement savings. They might start with token investments in their 401(k) plans (or get opted into them, if they’re not paying attention). Then, as their finances allow or if they’re dissatisfied with their 401(k)s, they “graduate” into other investment vehicles for their retirement nest eggs, such as IRAs and taxable accounts.
One question investors often ask is, if they have a fixed sum of money to invest every month or every year, how should they deploy that cash for their retirement savings?
As with many financial-planning questions, there are no one-size-fits-all answers: Variations in investors’ company retirement plans, tax situations, and time horizons mean that a retirement-savings hierarchy that makes sense for one individual may not add up for another.
That said, the following framework for retirement savings will be a good starting point for many investors. (Note that this hierarchy does not factor in nonretirement financial goals, such as amassing an emergency fund, saving for college, or investing for short- and intermediate-term financials.)
Click ahead to see five steps to bankrolling your retirement:
Source: Morningstar | Christine Benz