Comment by dheera
3 years ago
To be realistic ... 300K in the bay is barely livable if you're targeting a middle class life with kids and targeting retiring at 65.
First, ~46% of it is gone in taxes including federal tax (~25%), state tax (~8%), FICA (~4%), and sales tax on everything you eventually use the money for (~9%).
So that's 162K left. Not a lot to pay sky-high rents, car payments, insane medical bills despite insurance, lawyers to fight said bills, save up money for parental elderly care, save up money for yourself for retirement, etc.
And yeah, having kids on that money? Very difficult.
If you're not in the bay area, different story, it's a very nice income. But they probably won't give you that package if you're remote.
And if you're in the bay and not planning on having kids, it's an okay salary.
I get what you're saying, but the median income for SFO is way below what tech people get paid. "barely livable" is perhaps a bridge too far for the $300k+ crowd. :)
Maybe. But I had a big house in the “good school system” in the Atlanta burbs built in 2016 for $335K. Even today that would cost around $550K. It would take more than $300K to duplicate our lifestyle in the Bay Area.
I’ll take my former $150K in the burbs of Atlanta over $300k in the burbs any day.
And before the usual responses implying I’m disdaining what I can’t have, I current work for BigTech remotely.
You spend on a lot of things beyond housing, and most things outside of housing are about the same price between regions, so even if your housing costs is half as cheap, you are still falling behind on half as much salary. This is especially true for retirement savings, since you don’t have retire in a HCOL where you earned that money, and that expensive house can be sold, perhaps with some kind of profit to offset the extra interest paid, later.
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The median person in SFO lives a way worse life than a median person in Ohio
Eh, you'd be surprised how much being able to walk to things, and generally being in a major international city improves your quality of life if that's the kind of thing you prefer...
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Is there actual data that compares the quality of life for this? I’m curious to see how my city stacks up.
Only if you define "good life" as having a big house with a big yard.
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Maybe, but the average person there isn't “barely living” either.
> but the median income for SFO is way below
Yes, it's a huge problem. There are greedy people buying more houses than they can use as investment vehicles, renting them out to everyone else who can't afford housing at unaffordable prices, and that ultimately increases prices across the board on everything because local businesses and service industry also need to rent commercial space and personal space -- and that ultimately comes from greedy landlords who keep lobbying against building more housing.
Most of SF is NOT living a life that I would call "livable". Having roommates in late 30s out of necessity rather than choice, and working out of a bedroom with no sunlight and not retrofitted for earthquake and fire safety and removed of mold spores isn't even ethical IMO, but that's the reality that lots of people live in.
> Having roommates in late 30s out of necessity rather than choice
1. It's not as bad as you describe it. Not for tech workers, at least. Please go to the lady working at Walmart and ask her about her income and living arrangements before you rant about $300k a year.
2. Of course it's by choice. Nobody is forced to live in SF or the bay area. Especially not people in tech.
Yeah, they just need to put up a bunch of 10 story condo complexes all over the Bay Area. It's insane that Tokyo is so much cheaper than Mountain View
To be realistic, even in the Bay, 300k is more than livable if you're targeting a middle class lifestyle with kids and retiring at 65.
If you can't retire at 65 on 300k a year, you're not living a middle class lifestyle. Not even close.
Rent: 4k/month = 48k. Car payments 750/month = $9k. Using your post-tax numbers (which are wrong) that leaves over $100k per year for all the other random stuff you've listed, which is more than most people in the Bay Area make in a year.
(Also, you're math is wrong on the taxes; the rates you use are the statutory progressive rates, not the effective rates (so, for example, the effective rate on $300k would be approx 22% at the federal level assuming standard deduction but no retirement contributions or child credits). FICA is capped at the first $160k of income (meaning you don't pay more if you make more).)
What SF family with children are paying 4K a month on "rent" and what exactly do you envision this rented abode to be that is even remotely liveable with children? Are you living in anything close to reality?
I'm really not understanding this comment.
Go on Zillow and find all the 3-bedroom rentals available under $4k/mo in the Bay Area that are within 45-min commute distance from downtown SF via Bart/Caltrain/Muni. I count at least 1,000.
I live in a modern 1-bedroom apartment within biking distance to work (major FAANG campus) and pay $2,500/mo. My apartment complex offers 3-bedroom units, with private patios, for $3,500/mo. This is a nice community, professionally managed, with pool, gym, BBQ areas and park for kids to roam around.
Isn't that enough to raise children? Most people in major European cities raise perfectly functional and happy families on much less sqft and amenities.
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Is it realistic though?
If I set "max price" to 4k in Cupertino (random SV place) and 3+ bedrooms (2 kids), there's literally 8 results on Zillow.
Rent?
Car payments?
This is a weird form of retirement to me.
Those aren't retirement costs, those are current costs as listed by the OP as reasons he can't save for retirement.
Car payments were calculated based on a 50k new car, so if he's paying more than that he definitely has a luxury car.
Yeah, take home of $13.5k a month can get a little tight if you're looking at an $8k mortgage on a crappy little shithole condo
You surprisingly (considering you're making 5x the median household income for the US) end up having to lightly adhere to some sort of budget. With car payments, sending money to your family, and local inflated prices, it's easy to find yourself not saving enough for early retirement
I think if you just don't buy new cars or first class international plane tickets you can get by pretty comfortably though. I saved $100k a year with a pre-tax total comp of $350k for a few years in the Bay Area
And I on the other hand had a 3200 square foot house, two cars, in the good school system and my wife and I had date nights and the occasional vacation with a household income of $170K in north metro Atlanta in 2020…
How do you find yourself not saving enough for early retirement when you are saving $8k per month? Only a a tiny fraction of your condo is being consumed within a month. Far less than 8k.
I'm with you there. You can sell a condo to collect your $600k or whatever in equity, go buy a normal house in a normal city, and retire on $40k a year between that and your other savings.
My guess is that the maligned commenter I replied to is of the other school of thought, that they want to retire in the same house in the same town
A few years ago, I bought a 3-bedroom house in East Bay area, with a nice backyard (which looks distinctly less nice now, but hey, programming is a time-consuming job), and a decent public high school in walking distance for my two kids, all the while getting a whooping <$250K salary. Still had enough money left to invest in mutual funds and enjoy trips to Hawaii every other year or so.
I honestly don't know what to say. If you really think 300K/year is barely livable then I hope someone in your family has a sit down with you and ask blunt questions about what the fuck you're doing with all that money.
You're getting mercilessly downvoted by people suffering from extreme cognitive dissonance. Even the very idea of trying to save money for future medical catastrophes that are statistically bound to happen (parents, etc) are financial ticking time bombs.
Taxes aren't that high even if you are under the standard deduction. Assuming you are married here as you are taking about kids.
Fed + fica is 21% combined. State is 6%. Imputing sales tax doesn't make sense either - rent isn't subject to it.
Take home is a bit north of $200k. Yeah, that's affluent here. Not upper class, but solidly upper middle.
This "middle class life" really isn't middle class if a top 10% income can't afford it.
You might want to check what the difference between mean and marginal tax rate is. For somebody with a lifestyle in which $162k a year is considered "barey livable" that should be sth very easy to understand.
>save up money for parental elderly care
Sorry, what? Your parents? I can see that paying for 3 generations on one income can be hard.
> difference between mean and marginal
I was writing mean rates, not marignal.
For 300K in CA:
- marginal is 35% federal, 9.3% state, 2.35% FICA
- mean is 24.74% federal and 8.06% state, 4.79% FICA.
> I can see that paying for 3 generations on one income can be hard.
Yes, most working class people have to care for 3 generations. Parents being wealthy enough to take care of their own retirement expenses is a small, small number. Working class people in their middle ages choosing to not have kids is also a small number.
37.5% total taxation.
Someone in the UK on £236K ($300K) currently takes home only 57%, and doesn't have access to 30 year fixed rate mortgage loans
> To be realistic ... 300K in the bay is barely livable if you're targeting a middle class life with kids and targeting retiring at 65.
LOL. Do you live in Mars?
If 300k is "barely livable", then how does a Starbucks barista make a living in SV?
By instead living in the northern or eastern East Bay (exhibit 12): https://www.freddiemac.com/research/insight/20170404-service...
Or by living in someone's backyard shed: https://news.stanford.edu/2021/05/04/revealing-complexities-...
Or by sharing one-bedroom apartments to split rent, and eating as little as possible, to afford closer housing and reduce commuting costs: https://www.reimaginerpe.org/20-2/Goldman
They don't; it's like a whole big thing in city planning and urban development where people who work in the city don't actually live there and have to commute huge distances each day, and how that has a profound negative impact on the spaces where that happens.
You know you can just look up income stats for SF right?
Unless you have a tax write off, then you don't have to pay that much tax.
You can get legal insurance as well and get all that nonsense done for $20.
Elderly people can go retire in Mexico and have a better life than whatever is possible in the US, in towns full of other retired people.
What are you writing off against W2 salary?
A) Donating illiquid assets to your own non-profit helps a lot. I typically have acquired or bought or created something in prior years that can offset this year's income.
That one is up to a 20% tax deduction on this year's income without spending any of this year's money. and it rolls forward 5 years if its value is greater than those percentages of your income. so it adds up if you keep incorporating that into your strategy.
I like this more than donating generally appreciated assets
B) Traditional 401k contribution, with W-2 salary this is up to $22,500 this year in most circumstances. But, the next part is important too for double tax deduction:
C) Borrow $50,000 from the 401k (assumes the 401k already had more money in it from prior years and good investments) and donate that $50,000 cash to the above non-profit. Borrowing from a 401k requires you to pay it back across an interval over 5 years. So in future years you're doing that + 401k contributions. Or paying it off whenever you want. Or just accepting the tax and 10% penalty. On years where you have a ton more deduction you might only be paying the 10% penalty if you chose not to repay your 401k.
So now lets add this up from a $300,000 base salary.
The government was originally looking at a $300,000 AGI to tax you on, but now you reduce this by
A) $60,000 B) $22,500 C) $50,000
so now they are only looking at a $167,500 AGI to tax you on, while you still have $167,500 + A) $60,000, so $227,500 cash. But you want to keep reducing that AGI from here.
Stop here if you're plan is to put cash in a bank account and never take any risk. This is probably already way too much for anybody addicted to conservative generic personal finance forums.
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D) I typically have some expenses for a side project or something intended to be profitable. The great thing about this is that it involves you buying things you already wanted to buy. if you're in tech that's consumer electronics, software licenses, good CPAs, lawyers, domains, subscriptions.
I'm being conservative when I say $30,000, but lets say you actually did an ad spend, the sky is the limit.
Your various side project pursuits just have to make revenue in 5 years to prove that its not a hobby. make an LLC for all of your various interests and get around to it making some money eventually.
For sake of this, you spent $30,000 of your own money (but realistically, all the banks offered you credit cards with high limits and you can float this balance for years too, and interest on business purchases can also be deducted, if you're not allergic to the mere concept of holding debt)
AGI: $137,500
E) did you get a mortgage yet? lots of deductions there on a highly leveraged asset. too many variables for this, but just the interest is deductible not the principle payments. you can play around with a lot here, such as paying interest up front to generate more tax deductions.
on a $2,000,000 property with a 30 year mortgage, let's assume another $30,000 in interest paid annually.
AGI: $107,500
F) was the mortgage on an investment property? investment property is also depreciably on its current assessed value divided by 27.5 (residential) or 39 (commercial). so, on a $2,000,000 property that's another $72,700 tax deduction every year.
AGI: $34,800
in conclusion with a "salary" or AGI of $34,808, according to SmartAsset.com for someone living in San Francisco, they would be on the hook for about $8,000 in taxes. This is effectively a 2.6% tax rate and you’ve already bought most of the consumptive goods you wanted to buy anyway and have plenty of cash left over for savings and investments.
not advice. I could go far more aggressive than that.
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[irony] Yeah, for less than 2 million a year you can't raise a family [/irony]
interesting pov. not sure if serious thou