Software Engineer Salary – Cost of Living vs. Retirement Savings

Updated : Sep 06, 2019 in Articles

Software Engineer Salary – Cost of Living vs. Retirement Savings

What’s up everyone. Sam here from And today I want to talk about why cost of living is a more complicated
subject than you might think. Alright so you’ve probably heard about
cost of living before, especially if you’re considering different job offers
that are in different cities. And you know this is something that’s really
important to consider because simply put a hundred and fifty thousand dollars in
San Francisco is gonna be very very different than a hundred and fifty
thousand dollars in another city. So for example if you considered San Francisco
versus say Denver, the cost of living is going to be
drastically different. And that’s because of all these different factors. You know
housing is gonna be cheaper in Denver, food is gonna be cheaper, entertainment
is going to be cheaper, and there are lots of cost of living calculators out
there where we can actually compare the numbers. And I want to dive into one of
these real quick here so this is the cost of living calculator from Nerd
Wallet and I’ll link to this in the description below in case you want to
take a look for yourself. But we can just put in our city that you want to
consider the salary for and then the relative salary in the city that you’re
considering moving to. So in this case we see ninety-three thousand dollars. And
basically what this means is that if we were making a hundred and fifty thousand
dollars in San Francisco we could take a job in Denver making 93 thousand dollars
and we would be able to live exactly the same lifestyle. So obviously you can see
here it does break it down a little bit the cost of a two-bedroom apartment is
going to be dramatically different depending on where you live. So obviously
you know we’re talking about less than half the price in Denver or 59 percent
lower in this case. And other things are gonna be cheaper too. Like food is just
expensive in San Francisco in the Bay Area. And that’s just a fact of life. And
so you have to consider all of these different factors and this is a good
starting point for when you’re considering cost of living in different
areas. This might be that you know you’re looking at two different job offers or
it may be that you are considering moving to another city. And whatever it
is it’s really good to take a look at this sort of thing. But the problem with
calculators like this is that they’re not showing you the whole picture. And
the reason they’re not showing you the whole picture is that they are assuming
that you are spending 100% of your income on living
expenses basically. So between housing and food and everything else. And what
that means is that you know if I can afford a two-bedroom if I’m spending all
of my money in San Francisco and I’m paying for a two-bedroom and I’m eating
out and I’m doing all these things I could do exactly the same thing in
Denver. But the problem comes when we start to think about actually saving for
retirement. And here we can see this graph and basically what this graph is
showing you is that if we save 10% of our income off of a hundred and fifty
thousand dollar salary versus a 90 thousand dollar salary we are ending up
with dramatically different amounts of money at retirement. And in this case
it’s over a million dollars difference. If we consider just like average 7%
interest and all that sort of stuff. And so when we consider living in one place
versus the other we have to not just consider that one number and how they
compare, but if we want to have the same amount of money in retirement we’re
going to have to be actually spending more in savings as a proportion of our
total income when we live in a lower cost of living area. So for example if we
wanted to live in Denver we would be saving more like 15 or 18 percent of our
income as opposed to San Francisco where we’re only saving 10. And these are
factors that you have to think about when you’re actually doing this
calculation because otherwise you’re just going to do it based on this one
number and that’s actually going to as you can see from the graph, dramatically
affect where you end up at the end of your career. And you also you do have to
think about your goals here because if you’re planning on staying in the same
city then the cost of living in retirement is gonna be cheaper so it
doesn’t in that sense it doesn’t actually matter. But I think there are a
lot of fixed costs in retirement that we sort of assume that we’re gonna be able
to pay. So like you want a boat, or you want to move to another city, or you want
to go on vacations. All of these sorts of things that you’re gonna want to do
probably in your retirement are gonna have fixed costs regardless of where you
live. And so you have to be sure that you are
compensating for that when you consider cost of living. So when you’re doing this
what I would recommend is that you actually subtract the savings first and
subtract some fixed amount. So how do we actually do this calculation? And
consider our retirement. So let’s assume that we are saving for example $30,000.
So we’re gonna save 20% of our income. If we’re living in San Francisco
that means that if our income is 150 thousand we’re going to be saving 30,000.
And that means that our remaining amount of money is 120 thousand. Right cuz we’re
just subtracting the 30,000 from the total. Now with that 120,000 to have the
same lifestyle in Denver we would have to be making as you can see 70 roughly
seventy five thousand dollars. But if we consider that we’re actually trying to
save $30,000 a year regardless of where we live, a hundred and twenty thousand
dollars of living expenses plus the 30 thousand that we want to actually be
putting in saving is going to result in the relative amount of the relative
salary that we’re going to need is actually going to be 75 thousand plus
that 30 thousand that we’re saving. So even though when we put in this number
originally we saw that we only needed to be making ninety five thousand dollars
we actually if we’re we actually are going to need to be making a hundred and
five thousand dollars if we want to put the same amount of money into retirement.
So this is the sort of technical little change here but this is a really
important thing to consider when you’re actually considering different job
opportunities. I think it’s really easy to get sucked in with the simplicity of
something like this cost-of-living calculator. But there’s just more to it
that you need to consider. So I want to highly recommend that when you’re
considering those job offers you make sure that you take retirement savings
into account. And that’s all I got for you guys today, so if you like this video
please hit subscribe below. And if you want to download my free ebook on
dynamic programming to help you in your
interviews you can do that at And I look forward
to talking to you guys again soon.


  • you aren't taking into account income tax in san francisco, at the end of the day, you might save 30k every year but when you retire you'll look back on your own life and realize you lived with 8 people in a 4 bedroom apartment, stop worrying about retirement and live a better life now

  • Excellent video, Sam. I think this is a really crucial point that typically gets missed. Indeed, I think it's quite easy to miss if one looks at the initial numbers without diving any deeper as you've done here. I'd love to see more content like this. Thanks again for your insights!

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