A few years ago I met a gentleman who retired from the old American Telephone and Telegraph Company. It was at the time Lucent Technology became a stand alone company, having been spun off its parent company. He bragged about the thousands of share of Lucent he received from AT&T. He was proud of his lifetime pension and his current stock portfolio. He made it a point to underscore that if his current holding went to zero, he still has the security of a lifetime pension and a generous health care plan courtesy of his former employer.

Employers of the 21st century are not as generous. It will take a lot of planning and prioritizing to achieve any degree of financial comfort at retirement age. It will takes combination of retirement umbrellas like 401k, 403b, Conventional IRA, Roth Ira, Annuity, Real Estate holding to achieve your retirement goals.

All of these umbrellas have potential for growth. All of them have some tax advantages, but not all taxes advantages are created equal: some grow tax deferred, some grow tax free. With that in mind, lets prioritize our retirement umbrellas.

The chapter in the tax laws, commonly referred to as 401k, provides for employee to contribute pretax dollar to their retirement fund. All earnings are tax deferred. The percentage of match and contribution may vary from company to company and changes in the law may also have an effect on contribution allowed and employer match. Nonetheless, employers often match the employees contribution. In most cases, employees are allowed to contribute 15% of their gross income and in most cases employer will match 5%. From a financial stand point, employees should take full advantage of these benefits because it is a risk free investment with high return on pretax dollar: for each dollar contributed, the employer matches one dollar up to 5% for gross income. That's an instant risk free 100% return.

The Roth Individual Retirement Account, envisioned and sponsored by Senator William Roth, is the best place to put the next dollar after maximizing the employer's match. The Roth Ira uses after tax dollar, but grows tax free for ever. Many experts have done the calculation and they all have concluded: a dollar invested in the Roth will over time yield a higher return on investment than a dollar not matched by the employer in the 401k/403b.

Let's assume that you invest $100 with a return of 7.2%. Based on the law of 72, after 10 years you will have $200. Invested under the 401k/403b umbrella and assuming a 15% tax bracket, at the end of 10 years you will have $170 or a net return of $70. Under the same above assumptions, if that money is invested under the Roth Ira, the total amount invested would have been $115 since you used after tax dollar. The total return is still $200 with a net return of $85.

Under the current law a married couple can invest $8000 a year, a single person $4000. If you have money left after contributing 5% of gross income to your 401k and fully fund the Roth Ira, your next dollar should go to paying down the principal on your primary residence.

Your primary residence needs to be an integral part of your retirement planning. "If you don't have a mortgage payment, the grass feels better", says Dave Ramsey. Real Estate is one of the few investments left where one can enjoy tax free appreciation. According to the tax reform act of 1996, there is no capital gain tax if the property was the primary residence 2 out of the last 5 years. Capital gain is the difference between the selling price and the mortgage owed of the time of sale, an other word for it is profit.

Once you have a house free and clear of any lien, you can now contribute to the additional 10% that your employer does not match. The word annuity should only be part of your vocabulary once you have taken advantage of all of the others tax shelters discussed above. Annuity is the least preferred retirement option because of the various fees, surrender charges and other factors making it not so user friendly. The tax advantages are not enough to compensate for the fees and the complexity of investing in annuities.

Retirement planning can be challenging for many of us. Some guiding rules you might consider in that order:

1. Contribute to maximize employer match in the 401k

2. Fully fun the Roth IRA

3. Pay off your primary residence

4. Contribute to 401k without employer

5. Consider annuity if you need additional shelter.