Here in SF, housing costs are significantly higher. Other costs are somewhat higher. But you know what isn't? Mass produced consumer goods for one. An xbox (or tesla) costs the same whether you make $100k in SF or $50k in middle America.
You know what else? Travel. Domestic and international travel is a LOT more affordable when you're making $100k in SF.
And a big one: Retirement. You sock away your SF salary for 40 years and then retire in a cheaper COL area with no state income tax.
The truth is, even here, $100k is a lot of money. It really is. It's not rich by any stretch, but it's certainly not average middle class living. It is frustrating that a couple making over $200k can hardly buy 1000sq ft house while staying inside 30% (of gross income) housing budget, a metric widely seen as "affordable housing." But still, on balance, that couple making $200k is doing very, very well.
And the truth is, there are a lot of engineers here that, with liquidity events (which might just mean vesting your RSU's in an already public company), are earning $200k a year. That literally puts you in the top 1% of wage earners. (But not in THE "1%" of course which is usually a term referring to net worth and not gross income. But still.)
Edit:
The math is different of course if/when you add children to the mix. But I deliberately left them out, because in reality, it's just not a common lifestyle choice in San Francisco.
I wasn't talking about people making $200k, though. I was talking about people making $100k, because that's the number cherry picked by the person I was replying to.
And, yes, of course I'm aware that a Model S is the same price no matter where you buy it, to a first approximation. The point is that housing is so expensive in the Bay Area that you can actually end up having less disposable income left over for your car than someone making $20k less than you on paper in a much cheaper city and in a state with lower (or no) income taxes (Washington, Texas, maybe a few others?). If you don't believe me, you need to just sit down with a calculator that will do taxes and everything, look up comparable rents, and do the math. You sound like you might be surprised.
"You sock away your SF salary for 40 years and then retire in a cheaper COL area with no state income tax."
Small correction -- state income tax in CA is a big deal even if you're saving for retirement. And once you retire, you presumably won't care what the state income tax is.
Retirement savings goes into tax advantaged accounts like 401ks and iras. This is pre tax income. You pay the taxes at the end, when you're drawing from your accounts during retirement.
Not necessarily; you might have chosen a Roth for individual retirement savings. The contribution limit on that type of account is effectively higher than a traditional IRA, since it's expressed in post-tax dollars - very useful for someone trying to stash away as much as possible. Once the money is in the account, it grows tax-free.
But for those people, taxes are immediate rather than deferred.
Honestly, from the sound of it, you just googled retirement plans. :)
Actually, Roth IRAs are limited to $5000 a year per person, and once your income reaches ~$110k you can't deposit into a Roth at all. The vast majority of private retirement dollars are saved in 401k accounts that have have a cap much higher than in a Roth. Three times higher.
And actually, if you do the math (or just go read the math) you'll see that there is very little difference in your total retirement funds whether you use a pre-tax or post-tax account. This is because in a pre tax account you have the advantage of earning capital gains on the IRS's dime. The wisest choice is of course to use both if you can. Though many many people living in this area, due to income restrictions, cannot.
Anyway, I intended my reply to you as just honestly informative. I'm happy that you now are informed, but there was no reason to say "uhh, i mean a roth. yeah. a roth."
You couldn't be further off the mark. I've contributed to a Roth IRA for years, so I know you're incorrect about the individual contribution limit (it's $5,500 now). I live in the Bay Area. I replied to your comment because I've spent a fair bit of time thinking about this exact situation, and you responded in a rude and patronizing manner. That's not why I come to HN.
My reply was in the context of the $100k earner mentioned earlier, who would not be restricted from contributing to a Roth. Our hypothetical young tech worker is going to expect his or her real salary (and tax rate) to go nowhere but up as the years roll on. It's not bizarre to imagine this person might choose Roth rather than traditional for individual savings, independent of any 401k they might be contributing to.
There is only one way to read your comment:
"Small correction -- state income tax in CA is a big deal even if you're saving for retirement. And once you retire, you presumably won't care what the state income tax is."
You didn't qualify that! You added a "small correction" that was anything but. And yes, you got me, I didn't realize that for 2013 (possibly 2012?) the Roth limit was increased to $5500. Still not much stacked against the $24,000 I saved in my tax deferred accounts last year.
Listen man, i'm not one for silly debates on the internet, so go ahead and have the last word. But If you're going to add a "small correction" that is not really a correction, you should expect some disagreement.
Perhaps what you really meant was "That's true, unless you chose a Roth IRA as your only form of retirement savings. In that case, current tax rates matter and future tax rates don't."
That still glosses over the fact that I'm talking generally and you're talking about a specific, somewhat rare scenario. But at least it's accurate. As it was, had I not replied to you, a casual reader would've read my post, then yours, and walked away assuming that retirement savings is taxed at your current tax rate, in your current state of residence, when in reality it's just not so.
You know what else? Travel. Domestic and international travel is a LOT more affordable when you're making $100k in SF.
And a big one: Retirement. You sock away your SF salary for 40 years and then retire in a cheaper COL area with no state income tax.
The truth is, even here, $100k is a lot of money. It really is. It's not rich by any stretch, but it's certainly not average middle class living. It is frustrating that a couple making over $200k can hardly buy 1000sq ft house while staying inside 30% (of gross income) housing budget, a metric widely seen as "affordable housing." But still, on balance, that couple making $200k is doing very, very well.
And the truth is, there are a lot of engineers here that, with liquidity events (which might just mean vesting your RSU's in an already public company), are earning $200k a year. That literally puts you in the top 1% of wage earners. (But not in THE "1%" of course which is usually a term referring to net worth and not gross income. But still.)
Edit: The math is different of course if/when you add children to the mix. But I deliberately left them out, because in reality, it's just not a common lifestyle choice in San Francisco.