Precursor: I work in the software industry and as such, I'm pretty subjected to the massive instability: possibly no demand, and also i don't expect to be able to keep up with the technology when i'm 40+. (I'm thinking about switching careers when I invariably hit that impending mid-life crisis).

That said, i'm 25, and want to build out a good retirement plan. I've heard about 401k account and Roth IRA, but i don't really understand them. I've barely contributed to 401k accounts and $0 on Roth IRA (i know, i know, i haven't been very good about it). I would like to know... what all options are there for me and what might make sense in my case?

My situation: I'm 25, (filing single on taxes until 30+), live in CA, and pay a stupidly obscene amount of tax for a middle class 25 year old. I've started to try to put $15k this year in my 401k (but i'm still not sure how to manage that correctly). I live fairly frugally (for CA standards) so i never try to live above my means - i can very comfortably spare $3k a month (at max $4k) if i don't put any money into 401k account. I don't make over 127k, it's very slightly under that, so i can contribute to Roth IRA(?). i'm not sure if i can only do partial contributions or not?

what would you do in my situation, especially given that there's a chance i may have a career switch when i'm 40? assume that my salary will be around the same for the next 4-6 years, if i can still get a job.

  • 3
    What makes you think you'll become stupid at the age of 40?
    – littleadv
    Commented Sep 15, 2014 at 3:30
  • @littleadv you don't have to be stupid to not get a high-end software development job. i feel that given my low level of intelligence and motivation, i probably won't have a job as good as the one i have right now by the time i'm 40. i'm making my assumptions on the fact that i just don't see many OLD software developers, and especially not in high end positions. I don't mean to offend you if you are a smart software developer past the age of 40. i just don't think i'm that capable.
    – Dzt
    Commented Sep 15, 2014 at 7:07
  • @littleadv i read your profile and skimmed your blog. I see that you're also a software developer and that's probably why you were so offended by the way i asked this question. I didn't give you enough context for my question - i used to work a mediocre/decent software job before i joined a really "hardcore" software development company. so to me, i feel significantly dumber than the rest of the group. it's possible that i could go back to the job i had before and work there after 40, but i just wanted to assume worst case!!
    – Dzt
    Commented Sep 15, 2014 at 8:03
  • 2
    if you joined a "hard-core" software company it is because someone there thought you're intelligent enough to work at the level they require. You feel challenged - that's good, that's how you improve and grow. Give it several years and you'll discover that the mediocre/decent is too boring for you and not learning on a daily basis will not be challenging enough for you. Or quit, now, and go do something else that satisfies you better. If you want to feel that you're comparable to your peers on day 1 - flipping burgers is a good choice.
    – littleadv
    Commented Sep 15, 2014 at 8:10
  • 1
    As a 28 year old software engineer in OC at a large competitive company that you've heard of. My advice to you is to save aggressively in a tax deferred account. My effective tax rate is nearly 30%, so every dollar I save is actually a 30% saving on take home value. Ultimately I will probably not retire in California which makes the deferral even better.
    – Matthew
    Commented Sep 15, 2014 at 16:25

1 Answer 1


Your retirement plan shouldn't necessarily be dictated by your perceived employment risks. If you're feeling insecure about your short-term job longevity and mid-career prospects, you will likely benefit from a thoughtful and robust emergency fund plan. Your retirement plan is really designed to fund your life after work, so the usual advice to contribute as much as you can as early as you can applies either way. While a well-funded retirement portfolio will help you feel generally more secure in the long run (and worst case can be used earlier), a good emergency fund will do more to address your near-term concerns. Both retirement and emergency fund planning are fundamental to a comprehensive personal finance plan.

This post on StackExchange has some basic info about your retirement options. Given your spare income, you should be able to fully fund an IRA and your 401K every year with some left over. Check the fees in your 401K to determine if you really want to fully fund the 401K past employer matching. There are several good answers and info about that here. Low-cost mutual funds are a good choice for starting your IRA.

There is a lot of different advice about emergency funds (check here) ranging from x months salary in savings to detailed planning for each of your expenses. Regardless of which method you chose, it is important to think about your personal risk tolerance and create a plan that addresses your personal needs. It's difficult to live life and perform well at work if you're always worried about your situation. A good emergency plan should go a long way toward calming those fears.

Your concern about reaching mid-life and becoming obsolete or unable to keep up in your career may be premature. Of course your mind, body, and your abilities will change over the years, but it is very difficult to predict where you will be, what you will be doing, and whether your experience will offset any potential decrease in your ability to keep up. It's good to think ahead and consider the "what-ifs", but keep in mind that those scenarios are not preordained. There isn't anything special about being 40 that will force you into a different line of work if you don't want to switch.

  • thanks for the links and explanation! this was my first question here on money.stackexchange :)
    – Dzt
    Commented Sep 15, 2014 at 7:14
  • 2
    Of course! Its a little less black and white than Stack Overflow.
    – anders-hou
    Commented Sep 15, 2014 at 11:09

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