It's easier to think of your "total compensation" without taking into account cost of living. Lots of people (esp tech folks) don't have a personal budget and don't keep track of their costs / expenses in nearly the same level of detail that they keep track of their income.
The conventional wisdom on HN (for people who aren't going to be founding companies) is that if you join bigco FAANGs and bounce around among them for 20-30 years, you'll end up with way higher expected net worth by retirement than if you play the startup lottery.
Part of this is because of the power of compound interest. You can get that engine started in your early 20s and pour a lot of your "spare" money into it, especially you don't have kids yet.
This same argument applies to lowering your costs. If you live in SF, you could easily be paying $40k/y in rent or $100k/y on a mortgage. If you buy in a small town with 90% of a bay area comp package, you could be plowing all your housing savings into the compound interest machine.
edit: $/y instead of $/mo
Definitely a good thing to do during covid times, but you might want to move back after covid is over.
Have you ever lived in a small town in, say, Texas for a month? Nearly everything is cheaper there, and not by a little. Gas can be $1.50/gallon instead of $3.89/gallon. Dairy, produce, meat are all cheaper. Utilities/energy is cheaper.
Maybe it doesn't have as big an impact if you don't have kids, but I only have three and man these things eat a lot.
Beef was cheaper. Chicken and pork were same as Cali. Produce was a lot more expensive; regular produce cost the same as organic produce in Cali, and the quality dropped off a cliff in the winter.
Gasoline was cheaper, but the only utility that was cheaper was water. Internet was more expensive. Electricity and (natural) gas was significantly more expensive, because A/C was a must in the summer and heating was a must in the winter.
Car maintenance was much more expensive, since the salt they use to melt the snow is corrosive. House maintenance was more expensive, because the humidity year-round meant increased mold growth.
In order to get cheaper than LA/SF, you had to move to a small town...but you can do the same thing in Cali too; such as by moving to San Bernardino or Sacramento, and you end up with a much higher quality of life than a small town in the Midwest.
In LA with a little effort you can find endless Asian/Mexican options for sub-$10.
And yes, the tax rate is progressive, but the average rate is still around 9% at that income level (~36k). Marginal rate is just over 11%.
My overall point is just that almost all of the cost of living delta in CA is from taxes and housing. Didn't mean to get too deep into the numbers.
Whole Foods drip coffee is $1 for prime members in many locations and is drinkable if not great.
So the moral of my story is don’t move out of a high cost city for the money, it doesn’t add up. Move out for a myriad of other reasons that may be meaningful for you (family, life, etc)
My wife and I both work remotely now. We need a 3BR place to stay sane because we need two offices. Compared to the south bay, we are saving >3000/m in rent. At a high compensation, marginal tax rates in CA approach 50%. So that 36000 saved is worth 72000 in TC difference.
It gets more dramatic if you pay for childcare. Childcare in the bay area can easily run 20000 more than it might cost in a lower cost of living area. A family of four that has two kids in day care might save 60000 just off rent and childcare differences.
On the other hand, for single people who would have a 1BR wherever they chose to live, the rent difference may only be 20000 and the rest of expenses don't change much and then suddenly dropping 20% on your 200,000 TC ends up being a bad deal.
Even your chain restaurants are more pricey. Everyone has to pay rent, ya know?
The conventional wisdom (again) is to stay at FAANG and stay in the SFBA. You can also leave SFBA and work at smaller companies that don't offer FAANG comp, and it can still make sense because of the latter chunk of money (lower costs from housing and general CoL).
What specifically do you mean by “compound interest machine”?
How much would you have made if you'd invested in a FTSE index fund in 1990 till 2020?
Very little, as it happens. The reason everyone says index funds are great is because the US markets have done well historically. This is not a guarantee.
And of course market never recover.
you don't invest in just one region. You invest across the entire world, in all regions. You buy the entire market at market cap weights. This has been shown to have a positive expected return, going back over 100 yrs.
Also, at current interest rates, you'd need to save 65% of pre-tax income to have a good pension, so the likelihood of any of us having a decent pension is very, very low (modulo getting in early at a megacorp).
it's the best you can do. As the saying goes, past performance doesn't indicate future performance. However, it's the best guess you can make.
and has this been more correct than using historical data?
And the fundamentals and valuations are subjective - people value different aspects of a company differently. Who's to say your valuation is correct? This is the reason behind volatility.
But if you're buying a broad market cap-weighted index, the behaviour of the price is less affected by individual valuations and more affected by macro-economic factors. And historically, a broad market cap-weighted index has had positive returns. This cannot be said about individual companie's performance.
People have been saying "the markets are fundamentally changed and investing is dumb" for ages. Japan has been the single example people point to over and over and over. Meanwhile, other people are looking at 400% returns over several decades.
What metric are you using to say largest in 1960 though? Not disagreeing, just curious.
I dunno about Stripe, but a lot of folks at Google (and presumably the other FAANGs in the region) have had that option for a decade or more. I've had friends I met at Google Mountain View move to Ann Arbor, Boulder, Toronto, Tel Aviv, Boston, Seattle, etc, usually to be close to family when they're having kids. You do get CoL-adjusted but 90% of SV salary is pretty typical. Only restrictions are that you have to be a solid performer beforehand, and you have to find a team that's either in that location or that's willing to have you work remotely (many teams are happy to have remote workers, particularly ones who are high performers).
> If Stripe IPOs - they could use that stock they earned for 2 years while working remotely to buy a house almost anywhere besides NY/SF. (Effectively meaning they don't need SF/NY income anymore because they have paid the most expensive part of housing off)
That's the case for most people who have worked for ~5-10 years at a Silicon Valley company. When 2009 hit I had a bunch of coworkers who joked about buying up whole city blocks in Detroit and plopping down a Google office and an intentional-living commune there. A lot of mid-career engineers at a FAANG could buy a house for cash in most parts of the U.S. and then have enough left over to retire, but choose not to because at that point they've put down roots in the Bay Area (and gotten addicted to the weather and culture).
Anecdotally, I have never heard of anyone getting a job at a FAANG with that kind of salary working remotely from day 1. On the other hand, I have met several people who started on-site but switched to working remotely later. I'm not saying it's not possible to do the former, but it seems like it's way easier to work remotely for a FAANG if you've already proven yourself, which obviously doesn't work if you have already moved to a lower CoL area and are looking for work.
The cities the parent comment mentioned (Ann Arbor, Boulder, Toronto, Tel Aviv, Boston, Seattle) are all cities where Google has offices. So, the folks they mention weren't working remotely, but rather working locally in remote offices.
Source: Google San Diego employee
Source: know the people mentioned.
A lot of the people I mentioned above actually transferred PAs to make remote work work. If that's a goal of yours, Google's a big enough company that there's probably a role available.
The problem is that you need a VP exception for remote work and many VPs don't believe in it at all. So there are entire orgs where the number of remote people is zero.
I live in New York and like living here. I understand the cost of living here is high, but I also know that there are few places that can offer the lifestyle New York can. Given the option to keep most of my salary and relocate to a lower cost of living city, I think I’d stay in New York.
If you relocate from NY to a no tax state, but are still basically working for the NY office, you might be taxed as a telecommuter in NY and still need to pay NY income tax.
I'm not sure how this works for a multi-state company like Stripe, but I've had to do this when I transitioned to working remotely for a NY based startup.
Yeah, but the out-migration is largely at the low-end of the economic scale; with net in-migration at the high end.
Haha not exactly preaching to the choir here. We all are aware of what sacrifices we make and don't change course for those things.
Its always "lets see what it's like over here, oh cool mountains! oh cool, beaches, oh cool new IPAs" or whatever. Try not to get completely isolated with age and figure it out!
Leaving the Bay Area will lower your housing costs, but everything else you buy will take up a larger percentage of your income than it did before. Plus you'll be making less money -- in some cases, a lot less. Run the numbers and you might find out that even after paying for a Bay Area mortgage you would have more money in retirement in California than you would in a cheaper place.
Don't move for cost savings. The economic benefits are not as strong as they appear to be. Only move somewhere if it's actually where you want to live.
Just an example calculation: If you can save $1000/month on rent and another say $150/month on other living expenses. that's $13800 annually. That's about $138000 annually net salary right now ($124200 after the cut) to break even, or about $180K-$210K pre taxes and pre cut, living in San Fran. Now, if you move to an area with lower taxes that break even point will only go up.
Insurance dropped from $120/mo to $50/mo.
Furthermore, it is not only housing cost that is lower outside major cities. Your hairdresser also has higher rent in a major city, as do her suppliers. There's more traffic so goods take longer to deliver. This is besides the fact that other states/places can and often do have lower taxes on goods than major cities. So your iPhone might actually be cheaper as well.
Everything is more expensive in a major city because everyone has more expenses and passes those on.
NYC, where I live, has an 8.875% combined sales tax. And a high income tax.
Texas, meanwhile, has a maximum combined rate of 8.25% and no income taxes. High property taxes.
Moving to Texas would cut the sales tax I pay.
Meanwhile, all these affluent people have to move somewhere, the properties in these places aren't going to stay cheap forever. So you can get a cheaper mortgage in those places to pay off a property that will rise in value.
Of course, that's all speculation. Prices in the "good places" are already high anyway, if you really want to strike a bargain you have to buy into the places that are still up-and-coming.
You have to look at it in terms of opportunity cost. What else could you have bought for that money? If prices rise in SF only because of inflation, prices rise even faster in those places where there's a real increase in demand.
I didn't notice this when I went there last year, is it a post-covid thing? What happened?
Or, as California is a non-recourse state, leaving the bank holding the bag, paying only taxes on the unpaid debt.
> Meanwhile, all these affluent people have to move somewhere
Well, they actually don't have to move, and if they do it may not be to where you predict.
And on top of that, they may have to accept a non-compete clause in their employment contract.
All in all, they have a pretty strong incentive to remain a Stripe employee as long as possible. Stripe probably likes this.
Please excuse a non-american asking a question, but doesn't this mean that no money gets paid into retirements as well? Or is that a federal tax?
Either way, it has nothing to do with a state-level income tax.
Any other federal taxes to the individual are insignificant or investment related.
[0] https://smartasset.com/taxes/california-tax-calculator#pfVHM...
Eg Australia and Singapore have mandatory retirement funds. In eg Germany, the money you pay for the government retirement scheme, just gets paid out straight to current retirees, ie no savings are made at all.
Well, considering most state pension schemes are also Ponzi schemes this isn't the case in only Germany. Norway might have an actually sustainable pension scheme?
The Singaporean CPF system is interesting, but perhaps similar to the Norwegian system?
On top of that it's strongly encouraged to make private pension contributions, from pre-tax income; I think this corresponds to the US "401k"?
There is also a lot more tax advantaged savings for the better off i.e. 20k pa ISA basically put 20k a year beyond the reach of income and CGT is just the start.
VCT's EIS and SIS for some one on a SV engineers wage for example.
Tax on share options is far more sane as well.
Edit: Total Compensation on an annualized, repeatable basis. Usually used in the context of compensation packages in the software industry with companies such as Google and Facebook.
Thanks https://www.urbandictionary.com/define.php?term=tc
Motherfuck
But - uh - I think a lot of people would be happy to keep 90% of their really high silicon valley TC if they moved to another region and they got a one-time $20K relocation bonus to top it off. I'm sure many people in SV would move if they thought they could keep 90% of their TC in another area. That said - it only stays true if they stick with Stripe. As soon as Stripe doesn't employ them - they're gonna be competing for remote-only workers wages (or whatever is local too I guess) unless they move back.
I see these options as really good offers for those who really want to temporarily move somewhere else, like the company/manager/whatever they currently work for, and want to come back to the tech hub in 2-3 years (new parents? young/childless married couples? someone who misses their friends "back home"? Idk). For everyone else, I don't know why you'd move away unless you were already planning on it anyway. Your savings will be short term gained and you will lose all your friendships locally. You won't likely get to keep that $400K+ TC by sticking with permanently remote jobs or by not living in a tech hub city unless you never lose your job. (Uncommon) For people who hated living in NYC or SF Bay Area then maybe this is the winning ticket to help them kickstart their jump into another region.
If Stripe IPOs - they could use that stock they earned for 2 years while working remotely to buy a house almost anywhere besides NY/SF. (Effectively meaning they don't need SF/NY income anymore because they have paid the most expensive part of housing off)