Yesterday one of my facebook followers asked me a question about where you live and how that relates to your retirement savings. I’m going to answer his question and seven others because that’s what I do on Wednesdays. If you want me to answer your question next week, make sure to follow me on Facebook, Twitter, or both and tell me what to do on Tuesday nights!
Where Should You Live to Maximize Retirement Savings?
Patrick asked a great question about retirement savings. Should you live in a high cost of living area like New York or Los Angeles and get a higher salary (while also paying higher expenses) to increase your retirement savings?I have a mathematical answer, and then I have an emotional answer.
Mathematically, the bottom line is how much money you have left over to invest after you’ve paid all your bills. If you are making $150k a year in NYC but your bills cost you $140k, that only gives you $10k to invest in retirement accounts. If you are living in Omaha, Nebraska and you are making $75k a year but you can pay your bills with $55k a year, you have $20k for retirement savings. In this case, Omaha would be better for your retirement savings.
The important thing to remember about taking a high paying job in an expensive city is the fact that Uncle Sam doesn’t care where you live. An estimated tax bill for a single person making $75k a year is about $12,500, or about 17%. An estimate for someone making $150k a year is $32,957, or about 22%. Make sure to factor that into your equation to figure out where you have more money left over.
Now the emotional answer: live where you’re happy. If it costs you an extra $5k a year to live in your own personal paradise, then do it as soon as you can afford it. Saving for retirement is important, but so is being happy. If you’re really worried about retirement savings, I’d recommend you figure out a way to make more money and cover the $5k difference instead of resigning yourself to living in a city you don’t love.
The Rest of the Questions
Here they are folks. I’m gonna fire off answers real quick at the bottom. Thanks again to everyone who submitted questions this week!
Should You Recycle Toilet Paper?
If by recycle you mean wipe, then fold the toilet paper over and wipe again, then yes. If by recycle you mean take poop covered toilet paper to a recycle center, hell no.
Craziest Thing I’ve Done to Save Money
One of the dumbest things I’ve done to save money was spend about an hour scraping candle wax out of an old candle and dumping it into a new one. The craziest thing I’ve done to save money is probably walk about four miles to a bus station in Barcelona with two completely drunk friends at 1:00 am to catch a shuttle that would take us to an airport way outside the city. All because the flight was cheaper.
To be fair, I desperately tried to find a cab to take us the four miles, but we couldn’t find one (and I don’t think we would have been able to explain to the guy where we wanted to go anyway).
Sno Cones Made with Alcohol
You guys may not know this, but I don’t drink alcohol. I hate the taste of it, and I don’t like impairing my brain functions (they are naturally impaired enough as it is). I say remove the alcohol and add in ice cream. Oh, and switch out the Sno Cone with chunky ice cubes for a very fine Shaved Ice.
Seriously. Shaved Ice on top with and ice cream treat waiting for you on the bottom is pretty much the greatest dessert ever invented. And if you are of age and want to add a little alcohol, that’s probably good too.
Books I Read for Fun
I truly am a huge nerd. Right now I’m reading It Is Dangerous to Be Right When the Government Is Wrong
by Judge Andrew Napolitano, as well as End the Fed
by Ron Paul. Yes, those are the books I read for fun. These are political, libertarian books to help me further understand the concepts of liberty and freedom, and how these concepts disappeared from our government over the years. DON’T JUDGE.
If I want a novel, I read anything by Lee Child who is my favorite fiction author. He has about 14 novels published and I’ve really enjoyed about 12 of them. My favorite in the series is Tripwire
. Finally, if I feel like I want to be a better person, I’ll read my favorite book of all time, How To Win Friends and Influence People.
Investment Research vs. Personal or Career Development
This one is really interesting. If you asked me three years ago, I would have said career development. If you asked me two years ago, I would have said investment research. If you ask me today, I would say personal development. It really just depends on your life goals.
I do want to note that more research about investments does not always mean better returns. As you can see from my stock market experiment, 10 random stocks are outperforming both the S&P 500 and a highly rated mutual fund run by professional finance dudes. I like to spend my time with something I know will reap results, so I’d suggest either personal or career development.
How a Leader Makes His Team Better
I love this question because it takes me back to my time as a swim team captain and swimming/diving coach. I definitely wasn’t the best captain or coach, but I did learn a few lessons from those experiences.
As a team captain, the best way to lead is by example. You can talk until you’re blue in the face, but if you aren’t living it then nobody cares.
As a coach, I found two things that helped me more than anything else. First, encourage friendly but real competition within the team. Competition makes everyone better as long as you make sure the best player gets to play. Second, have complete faith in your team. Someone is not going to believe in themselves if their leader/coach/boss doesn’t believe in them. There are probably 100 more things to add, but those two were by far the most important in my experience.
A Late Entry into the Republican Race
Sorry Judith! Someone asked about politics, so I had to answer. I’ll make it quick.
My only thought on a late entry into the Republican race is it doesn’t matter. If the Republican nominee is Ron Paul, I’ll be ecstatic. If it’s anyone else, I’ll write in Ron Paul. You could throw Chris Christie, Mitch Daniels, Sarah Palin, or anyone else into the ring and it wouldn’t change how I feel about Ron Paul vs. the rest of the field.
Tell Me What to Write Next Week
Don’t forget that YOU get to tell me what to write on Wednesdays. And the only way to do that is to connect with me on Facebook and Twitter. Tell me what to do, and let me know how I’m doing.
Kevin McKee is an entrepreneur, IT guru, and personal finance leader. In addition to his writing, Kevin is the head of IT at Buildingstars, Co-Founder of Padmission, and organizer of Laravel STL. He is also the creator of www.contributetoopensource.com. When he’s not working, Kevin enjoys podcasting about movies and spending time with his wife and four children.
What you should do is work for a company that will not, for any reason, reduce your salary. Then start working in a low cost of living area (LCOLA). Then start job hoping within the company to higher and higher COLA areas. Then, when you are making huge money in a super high cost of living area… move back to where you started.
You will be making huge money in a LCOLA area, and be able to bank almost all of it.
A lot of different factors are involved, but if you have he option, do it!
PS… this actually works. A buddy of mine I worked with started in Alabama, moved to Seattle, plans to move to LA, then back down to Houston. His Seattle pay was about 2x higher than his starting pay in Alabama.
That’s a good strategy, except when the economy goes south. Then all of a sudden your inflated salary makes you a big liability and the first one on the chopping block. At least that’s what happened to people at my company.
But take the money while you can get it if that’s what you want! 🙂
I think that you should write a piece on not drinking!
I’m a drinker, but about 3-4 times per year I take a break. I haven’t had a drink since New Years Eve, and there are major social aspects that are hard to get around. Grabbing a beer after work. Have a glass of wine with a girlfriend while we vent about our day. Playing beer pong. Having margaritas with the gang at cheap taco night. Having friend over for hot toddies on rainy days. Power hours.
I could grab *water* and watch a friend drink beer after work, or drink tea with venting girlfriends, watch beer pong, just eat tacos and watch everyone else enjoy their margaritas, have my friends over for hot chocolate, and watch power hours– but frankly, my friends want booze and I don’t blame them (nor do I much enjoy watching).
I’m sure you have some insight into all that?
I would agree that there is some social pressures to drink, esp among 20somethings. I’m not really a drinker so in general, I just ignore them and drink what I want, and if that’s water, then it’s water. That said, here is one trick I developed that was great at shutting people up when we would go out.
1. order a vodka sprite (or other clear drink)
2. When finished, go up to the bar with your glass and ask for a water.
3. dump said water into your vodka glass.
4. profit
Every just assumes you kicking back more of your clear adult beverage and shuts up, you get to enjoy the next day headache free and with an extra couple bucks in your pocket. 🙂
The problem with that strategy for me is that I hate vodka more than any other drink on this planet. Maybe I just start with a sprite?
Honestly all my friends know I don’t drink and no one gives me any trouble for it. Plus I’m only at a bar once every 213 days (approximately).
I have 26 years of insight into not drinking (well, I guess I’ve only had pressure to drink for the last 10 or so).
If that’s what the readers want, I’ll have to do a post about it. 🙂
The one time I did drink a bunch of wine, even though I didn’t have a hangover or anything I couldn’t even stand the thought of taking a sip of wine at church the next day. Bleh!
Oooh, shave ice and ice cream sounds like a match made in heaven. Love ice cream! Thanks for accepting my random topic suggestions.
Thanks for giving me a topic!
Seriously, find a place that sells ice cream and shave ice, and pay whatever they ask. It’s magical.
The march of technology will eventually make the place you live pretty much unrelated to the location of your job.
For “knowledge workers,” location is already becoming irrelevant, and that trend will continue to grow as a higher percentage of the population becomes “knowledge workers.” In fact, it could be argued that requiring a “knowledge worker” (a person whose job consists of moving electronic bits from one place to another) to physically commute to a central location to sit in a cubicle surrounded by other “knowledge workers” is a colossal waste of resources. True, for some folks, the in-person interaction is psychologically necessary, but even that can be satisfied with sufficiently-advanced technology. My wife described a meeting she had at work yesterday with a group of employees 9 time-zones away which was very much as if they were all sitting in the same room.
Even the folks who now have to appear at a specific location in order to do a job (e.g., plumbers, electricians, mechanics, etc.) will eventually have technology making it possible to telecommute (waldoes, robots, etc.). Already, there are computerized surgical tools that a surgeon can pre-program to prevent any possibility of cutting in the wrong place — at the same time eliminating hand-tremors. The surgeon does not even have to be in the same room, so he or she doesn’t even have to scrub! Therefore, the room can be smaller, and easier to sterilize. There are already cases of successful tele-surgery, and that is likely to become the rule rather than the exception in less than another decade. In my day job as a programmer, I am working on a pilot project to completely automate a freight train, which is pretty exciting. Any time there is a transportation situation, the purpose of which isn’t the transportation of a person, then sending that person along for the ride is a waste, and I think that technology will soon eliminate the need to send that human driver/pilot along. As soon as it becomes cheaper to have your pilot/driver sitting comfortably at home, that will become the rule rather than the exception. Of course, the next step is to eliminate the driver/pilot completely.
OTOH, I don’t see myself ever getting on an airplane where the pilot isn’t physically present. I want him/her to have some real skin in the game.
The technology is *almost* here that would enable me to give violin lessons remotely, instead of requiring my students to drive from whereever they happen to reside. When it becomes feasible, then I could teach my craft to any person in the world. OTOH, I would then have to compete with every other violin teacher in the world (and there are many who are better than I am — fortunately for me, they will continue to be time- and bandwidth-limited in the process of dealing one-on-one with students, so there will be room for me to compete). When I can teach students with no geography constraints, then it no longer matters where I live, so I can chose to live at whatever location maximizes my financial goals, if that is my choice. In fact, I have recently explored working for a company that does tele-teaching of English as a foreign language, which I probably would have pursued farther if I had not landed a job as a programmer (which I prefer). Of course, “programmer” == “knowledge worker.” As discussed two paragraphs back, the fact that I currently have to make a somewhat lengthy and hazardous journey to and from a cubicle-farm is a waste, and eventually will be eliminated. Maybe not this year, maybe not next year, but probably within my lifetime.
These are all good points. I personally work from home a lot and can do my job just as well from home as I can from the office.
I think you’re right that location will become less of a factor in the future.
Thanks for keeping it short! 😀
I did my best! 🙂
Love your choice in fiction! Lee Child is a favorite of mine, too. What do you think about Tom Cruise playing Reacher? I think it’s just *wrong*!
Well at first I was really upset about it. Now, I’m in “wait and see” mode. First of all, his name alone is going to draw non-Reacher fans into the movies which is a good thing. Second, they can make him look bigger than he really is so the physical stature isn’t a huge problem.
I just need to see if he can be cerebral and calculated like Reacher. If he plays it like he does Mission Impossible, I’ll be upset. If he plays it better than that, I’ll be okay.
With that being said, I can’t really think of a perfect Reacher. I think a young Sean Connery without the accent, but I don’t think that person exists.
I’m right there with ya. I was appalled at first (Reacher is supposed to be 6’4″ or something!), but after seeing Mission Impossible, I remembered why he’s a box office hit and who he can turn into when he acts. I could see Daniel Craig as Reacher. He’d definitely look better without a shirt 🙂
Oh, I just re-read that. You *didn’t* like him in MI?
It’s not that I didn’t like him in MI. It’s that he wasn’t Reacher-like in MI.
Reacher is always intellectually 6 steps ahead of everyone else. In MI, Tom Cruise was flying by the seat of his pants the whole movie. He needs to be more calculated and controlled to be Reacher.
True. Not sure that Daniel Craig could do cerebral, but I picture Reacher looking more like him…blond and muscular.
Thanks for answering my question.
I have been to Barcelona, how far out of town was the airport?
Several year reader. First time posting.
Kevin,
I think that you missed a huge part of the analysis involved in answering the cost of living/ location/ retirement question.
As a 20-something in Texas you probably don’t have to even consider these issues but as a youngish professional in california I work with pre-retirees considering it all the time.
As you mentioned uncle sam doesn’t care where you live, but aunt state does. In California that is about 9% additional income tax coming out of both your paycheck and either end of retirement savings.
Obviously, more taxes is less to save or invest.
From what those getting ready to retire are telling me they get hosed if they same in any post-taxed retirement plans, but almost all of them are contributing to pre-taxed plans and plan to leave to a no income tax state as soon as they retire. In this way they should be able to avoid paying any state tax on the retirement portion.
I have even talked to a few who moved to a border of two states one with no state income tax (like Washington) and one with no sales tax (like Oregon) so that with careful shopping they can avoid several of the smaller taxes.
Anyway, not anything that you have to worry about in a boot strap state like Texas but in nanny-state California 9% can hurt.