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Living the good life in a high cost of living area on $250k

March 17, 2014

Her Every Cent Counts linked to a post over at WealthFront, that made the claim that a couple making $250k gross couldn’t “make it” in Silicon Valley without also owning equity in a company that generated another ~200k/year.

At first glance, the couple in the article sounded eerily similar to T and I.  Age 30, generous salary, 2 kids and a home, high cost area…  Yet, I’ve had faith that we not only could “make it” on our current path, but that we could live the good life, and that we’d even have options as we got further along.  Was I wrong about that?  The headline was depressing, but I was skeptical of the results and dug into the assumptions.

Here’s the assumptions they made and how I changed some of them for our situation:

General Spending

  • Assumption:  $60k non-kid spending EXCLUDING rent/mortgage (their sample budget)
  • My reality:  With hardly any efforts to reign in spending, our projected spending is at $70k this year… but that includes over $26k in rent!  We spend more in several categories, less in others.  One notable item is $12k/year in cars.  I just calculated that we spend $6.7k/year on cars.  It is important to realize the impact of choices like being a one car family can have on the big picture!  I’ll put this at $44k, assuming someday we’ll spend LESS on dinners and wine, but more in other areas

Housing Costs

  • Assumption:  $1,000,000 with 20% down.
  • My reality:  This is a reasonable assumption for the area, and we certainly could do that.  However, my goal is to keep housing under $750k, even if we have to make some sacrifices.  I’ve seen some recently sold houses in this ballpark, so as long as we don’t jump in at the worst time, it isn’t just wishful thinking.  We’ll be putting 20% down.  I added $300 to monthly payment they calculated to cover some of the costs that I don’t have now that they included in general spending (home insurance & upkeep, etc.).  $1M may be more realistic for Silicon Valley.

College Savings

  • Assumption:  College savings are a higher priority than retirement savings, and you should save $1,100/mo per a kid (based on this calculation)
  • My reality:  Yes, if possible we’ll save this much, but it is NOT higher priority than retirement.  I didn’t change anything about how this assumption was used, because I found I didn’t need to in order to make the numbers work for me.

Cost of Kids 

  • Assumption:  $22k/year on top of housing, based on national average of 22k/year including housing.  Housing was arbitrarily  assumed to be excluded from the $22k number with the simple justification that it is a high cost area.  I don’t think that is a good assumption.  Housing makes up $8-$10k/year per a kid!  It may cost a bit more than the average, but that seems like an excessive amount of margin.
  • My reality:  For now, I subtracted out $8k for housing, since that is accounted for elsewhere.  Certainly we could spend more per a kid… but only if we were adequately funding everything else.

Retirement Savings

  • Assumption:  Unless I missed something, this theoretical couple making $250k didn’t save anything in retirement until they had their first kid at the age of 30.  That assumption seems deeply flawed.  They have that $250k for a downpayment, but weren’t they funding retirement?  Why not?
  • My reality:  We are approximately 30 (we average to 30!) and we have about $270k in retirement between us.  T only started saving aggressively this past year, and we plan to add over $50k/year until we have kids.  Plus growth!  This makes a huge difference.


  • Assumption:  $250k gross, plus inflation
  • Reality:  That’s close enough.  It is almost right on if I make an “average” bonus, but could be +/- a bit.  I also am not sure we’ll maintain these salaries consistently forever until age 65.


  • Assumption:  45% (federal + state)
  • Reality:  Seems a bit high, considering property taxes are separate… but I didn’t change it.


That’s a lot of assumptions!  This is why I am not the biggest fan rent vs. buy  and retirement calculators.  I can use them to bound the problem, but each small assumption can have a big impact on the results.

The theoretical couple can’t save anything for retirement from the time their 2nd child is born until that 2nd child has been in college for a year.  However, at that point they can save a lot for retirement from age 52 until they retire at age 65, and they indeed are able to retire and fund themselves until they are 81.  (Clearly earlier funding for retirement combined with student loans would make sense for this family.)   The calculations stop at 81, but they still have $over $3 million (in future dollars) to last beyond age 81.  They are drawing down about $220k/year, assuming their pre-kid spending rate has grown accordingly with inflation.

My theoretical results show that we’re able to save for retirement all the way through the kids’ childhoods, dipping down to 20k at the lowest year.  Working until we are 65 would give us over $10 million dollars, and by age 81, we actually have MORE money because the returns on our investments beat out what we are withdrawing.

Obviously this isn’t going to be my reality.  There is no way I’d work  at a consistantly high paying job until 65 if I had plenty of money to retire.  Other expenses will pop up, and we probably won’t both have the same salaries indefinitely.  Still, it is interesting to look at these calculations, which claimed to have generous assumptions, and apply them to a possible situation for me.

My Conclusion

We are going to be just fine.  No matter what.  Unexpected things will come up, life may turn out completely differently than I sketched out here, but we’ll be fine.

What do you think of my assumptions?  Did I miss anything in the original post that makes my calculations flawed?

Footnote:  After reading that post and picking through assumptions, I wondered why the author would skew the results so much.  WealthFront is some sort of investment management company.  I haven’t read all the fine print, but their fee model looks legit.  They charge .25% and only deal with low cost index fund ETFs benchmarking their fees favorably to Vanguard.  Obviously you could go direct through Vanguard, but they help out with investment decisions for what seems to be a  modest fee.  I’d even consider that, honestly.  I’m not sure what the deal is with the assumptions made here, particularly the no retirement savings at age 30 one.  They justified in the comments that it isn’t typical to have $200k cash and retirement savings at 30 w/out equity/inheritance, but it also isn’t “typical” to be making $250k.  Couldn’t they delay the kids 1 -2 years and make a big difference?

7 Comments leave one →
  1. March 17, 2014 7:10 am

    Posts like that are such BS. We did just fine (as in, shopped at WF every week, did fun stuff every weekend, didn’t worry about money, fancy daycare, charitable giving, etc.) on less than 120K with a kid in a similar high cost of living area (including plenty of retirement saving!). We rented instead of buying, and we had one car. Because if there’s public transportation you don’t need two cars. If we’d stayed there, we’d have been in walking distance to a great elementary school.

    Those kinds of posts tend to be used to justify lower marginal tax rates (tiny violin for those poor little rich people), but if you can’t make it on 250K, then what about all the people living in the city making the median wage or less?

  2. March 17, 2014 8:08 am

    I have to agree with nicoleandmaggie: ” if you can’t make it on 250K, then what about all the people living in the city making the median wage or less?”

    Also they could just rent instead of buying a place and free up invested cash that way.

  3. March 17, 2014 8:09 am

    Side note: Gardener? Housekeeper? …. Definitely not a typical budget.

  4. March 17, 2014 8:50 am

    What’s even crazier is the comments on that post defending their assumptions. I had to stop reading pretty quickly.

  5. March 22, 2014 9:18 pm

    I didn’t read the whole WF article because I found the title unbelievably depressing. Even if it were true, I thought it would be demotivating rather than motivating at this point in my career/financial journey. I am really, really glad to read your post and your take on their assumptions – and one of the things I’ve always admired about you is that in addition to your saving prowess, you are so clear-headed about these things. Thanks for this post. You are going to be more than “just fine.” And I hope I will be as well.


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