Living in a high cost of living area is a FANTASTIC way to get your retirement plans going. Putting 10% of your SF income into your 401k is way better than putting 10% of your Austin, TX salary into your 401k. So while you're young and single you bank away lots of cash. Then you move and start a family elsewhere and retire comfortably. The problem is that I don't think enough people life-hack in this way.
This is true, but 401K contributions are capped at around $17K. You can do that with the Austin salary just as well, usually. In Austin you have no state income tax, and the price of everything else is much lower (in general).
The absolute cheapest home near my work with 2 bedrooms is a condo at $700K (source: realtor.com). (edit: that is an outlier, most are considerably more expensive, and these days the 'ask' is the lowball figure - people will bid several hundred thousand over the ask to buy, because they are competing against other twitter millionaires buying for cash and nonchalant about the housing bubble because they can't be really hurt if it crashes)
To get a home equal to the home I moved from in CO (which I bought for $425K) would be, I don't know, nothing is listed to compare. Over $3M I would think. My friend recently sold his house north of that, and his yard was tiny and the house was smaller. My CO house is comparable to a $4-5M Tahoe mountain home - a few acres, awesome views, wooden beam interior, huge open space interior plan, full basement, multiple decks, and so on. (edit: okay, cabinets are Home Depot, not custom built, etc, but it's still a close comp otherwise)
So, yes, if you want to live in a cramped condo, see your money evaporate to taxes, driving to work, private schools, and so on, you can 'life hack' here. Or, you can live elsewhere, own a few acres, have a big garage, a rec room, work normal hours, have half the commute, and still save plenty of money.
> So, yes, if you want to live in a cramped condo, see your money evaporate to taxes, driving to work, private schools, and so on, you can 'life hack' here. Or, you can live elsewhere, own a few acres, have a big garage, a rec room, work normal hours, have half the commute, and still save plenty of money.
While you aren't going to be living on a few acres working at a tech job in the Bay Ara (barring long commutes), you are exaggerating a bit here.
- If you live in SF, you generally don't need to drive to work. Your commute will be short (<25 minutes). You can get quite livable single-family homes (3 bedrooms, 1400 square feet) for $750k. You may want to consider private schools.
- If you live in areas where you want to get good public schools, prices may surge to $900k for homes that size.
tl;dr If you want a huge home with huge lots, yes, very difficult in the Bay Area. But if you just want a typical suburban lfiestyle, it is pretty easy to do on a tech salary.
> - If you live in SF, you generally don't need to drive to work. Your commute will be short (<25 minutes). You can get quite livable single-family homes (3 bedrooms, 1400 square feet) for $750k. You may want to consider private schools.
I live in Dallas, have a driving commute well under 25 minutes, and have a 3 bedroom, 2300 sqft house I paid $175k for with the same stipulation on the schools. Your scenario would be a major cost increase for me. In fact, I could probably max out my 401k here with just the housing cost delta. Austin is more expensive than Dallas[1], but I wouldn't expect to pay more than about $250k - $300k for my house there (for reference, my house is worth about $190k now). I could downsize to your SF-sized house here for under $100k. Since I would realistically only get about a 70% pay raise max over my Dallas salary for moving to SF, it doesn't make any sense.
For savings, the only thing that matters is the delta between expenses and income. I live in rural Massachusetts and had no problem maxing 401k for 20 years. I used to live in NYC and the delta is way higher here even though the raw salary was higher in NYC.
I'll copy/pasta my response to someone else who made a similar response:
Let's say in SF you get $150k and put 10% away with a 5% match. That's $22,500 per year you're socking away into your 401k. If you live in Orlando and you're making $90k/yr and put 10% away with a 5% match that's $13,500, a net loss of $9k every year in early retirement savings. After compound growth over 40 years of maturity that's going to be a TON of cash. As long as you don't plan on RETIRING in SF, you're much better off working there.
You're talking past each other. The point is that in other places you can save a larger fraction of your income such that you're actually saving more money in dollar terms living in rural MA than living in SF. SF is hilariously expensive compared to any other major city in North America.
Why base your saving % on your salary? Again, delta is all that matters.
From my experience, that delta is higher in low expense areas. The assumption I'm making is that the typical HN'er is a top performer who can demand top percentile salary in any market, or work remotely.
The hack I recommend is getting SF salary in low-cost area.
No, because in his scenario, in SF you just made $54,000 more before taxes and after 401K contributions. I have no clue what Florida tax rates are, but there is no way that after taxes that is not at least $27k more earned in SF.
It is only correct if the random SF and Florida salaries are correct.
I work in rural MA and make considerably more than the given SF salary (non-remote). The SF salary is probably better on average (the 50 percentile), but I stand by my statement that top performers can command SF salaries in any market. Even if you can't find something local, there are a ton of remote options.
What you said makes sense to me on its own, but there's more to it than that. If your cost of living is much lower in Orlando, perhaps you can save 20% of your $90k income instead of 10% of the $150k income.
I really enjoy owning a house. I wouldn't be able to afford it in SF. I bought a nice 3/2 in Orlando for only $110k a couple years ago. My dog loves it too. :) So there's also that.
Or, you can work in an area where you can strike a balance, where the market/salaries for your field are good/higher compared to the cost of living. While I generally agree with your sentiment, I don't regret enjoying my life as I live it.
Except it doesn't really work that way? If they pay extra in SF than in Austin to make up for the difference in living expenses, your net income pool that you draw from to contribute to your 401k is going to be roughly the same.
Let's say in SF you get $150k and put 10% away with a 5% match. That's $22,500 per year you're socking away into your 401k. If you live in Orlando and you're making $90k/yr and put 10% away with a 5% match that's $13,500, a net loss of $9k every year in early retirement savings. After compound growth over 40 years of maturity that's going to be a TON of cash. As long as you don't plan on RETIRING in SF, you're much better off working there.
But what you have available to save is not a % of your total salary, it's a % of your total net income (salary - taxes - living expenses). If those jobs in SF pay higher wages purely to keep up with the inflated living expenses, then you don't really have more money to devote to your 401k.
Where in the world does that apply? NYC has some of the most tenant-friendly rent control laws I know of, and most rent-controlled units are fairly close to market rate, and the legends you hear about exist but are so rare they might as well not.
Urban centers have a pretty finite supply of housing, so you're looking at what amounts to a long-running auction for rents among residents. People are generally pretty willing to "bid" 25-35% of their income on rent (or more, depending on the area and demographic), so as average salary rises, rents are going to rise too, unless you're expecting a major urban retreat sometime soon.
