Real Take-Home Income

Day 10 – October 11th

Let’s talk income. When you are just out of college, never having seen an actual paycheck in your life, and with no idea of what you are worth, it is easy to take the first job that throws a decent number at you. After all, we are constantly hearing in the news about the 4.3% unemployment rate and how the median household income in the US hovering just shy of $60k (2017 U.S. numbers). If you can get close or above that number just by yourself, you’re set right? In most places, I would say yes, but what seems like a large gross salary can actually dwindle very quickly, so it is good to know how much you actually make based on the cost of living where you are.

Business Insider came out today with an interesting video that showcases how much money you actually take away from a $75,000 salary across 11 different cities. They make some assumptions about certain tax costs, but it is a good estimate of what $75,000 actually looks like across America. Go check that out, but below is what they found:

City Annual Take-Home Income – $75k minus federal, state, and local taxes
New York City, NY $49,896
Washington, DC $51,696
Los Angeles, CA $51,960
San Francisco, CA $51,960
Boston, MA $52,824
Denver, CO $53,184
Chicago, IL $53,592
Seattle, WA $56,328
Nashville, TN $56,328
Miami, FL $56,328
Dallas, TX $56,328

Now, a big thing that the Business Insider calculation doesn’t account for is any retirement costs that you may have. I will write a separate post in the near future of what is the most valuable way to spend your income to make sure you are maximizing retirement savings, but right now I wanted to add-in the “best” case retirement savings scenario to the Business Insider data to see what you can actually pocket if you max all retirement options.

I firmly believe that maximizing your 401k and maximizing a personal IRA is the best thing you can do for yourself and your future. I’m going to make some assumptions here:

  1. I am going to assume your entire 401k is traditional and not a Roth 401k, meaning the contribution is taken pre-tax.
  2. I’m going to assume your personal IRA is a Roth IRA meaning that you pay for it with after-tax income.
  3. I am not taking into account any health insurance costs. If you are enrolled in a healthcare program through your employer, these costs are most likely deducted on a bi-monthly pre-tax basis, so your take-home will be even less.
  4. All tax rates are based on information from the Business Insider Article. I checked these and I believe they are close – nevertheless – think of these as approximations.

This is what I found. You can take a look at the full calculation here.

City Annual Take-Home Income – $75k minus federal, state, and local taxes, as well as 401(k) and Roth IRA maximum contribution
New York City, NY $32,420.96
Washington, DC $33,788.96
Los Angeles, CA $33,989.60
San Francisco, CA $33,989.60
Boston, MA $34,646.24
Denver, CO $34,828.64
Chicago, IL $35,229.92
Seattle, WA $37,309.28
Nashville, TN $37,309.28
Miami, FL $37,309.28
Dallas, TX $37,309.28

After contributing $18,000 to your 401(k) and $5,500 to your Roth IRA (the federal maxes), you can see that your in-pocket income is a less than 50% of your initial salary. Yea, I know, that looks like it sucks, right? Though saving for retirement can seem terrible, it is the single most important factor in wealth accruement that you can make as an adult. The power of compounding interest on savings made in your 20s and 30s can provide you with an extraordinary leg up when it comes to retirement. This money isn’t just disappearing: 70-year-old you will be thanking you when they can cash it out + interest.

Alright, now lets take into consideration the next single biggest expense for most working Americans – rent. A couple more assumptions:

  1. All rent estimates are for 1 Bedroom Apartments. I’m sure it would be cheaper to split a 2 bedroom or crash 2+ to a room in most of these cities.
  2. All rent estimates are from the 09/2017 data from Rent Jungle.

This is what I found. Check the 2nd tab of the Google Sheet above to see the full calculation.

City Annual Take-Home Income After Rent
New York City, NY -$87.04
Washington, DC $9,368.96
Los Angeles, CA $7,373.60
San Francisco, CA -$6,786.40
Boston, MA $4,346.24
Denver, CO $18,136.64
Chicago, IL $15,441.92
Seattle, WA $12,733.28
Nashville, TN $22,633.28
Miami, FL $16,249.28
Dallas, TX $24,565.28

Now this is crazy: With a $75,000 salary and maxing out your retirement options, you literally can’t afford to stay in a 1 bedroom in New York or San Francisco. Essentially, while staying in these cities, you either need to compromise on retirement savings or compromise on your living situation to have income to spend on other costs, such as food, electric, internet, phone, car, misc. From the other 9 cities, Dallas wins in a landslide with the highest after-tax-&-retirement income and the lowest monthly rent cost.

So while $75,000 is definitely a lot of money and much higher than the median income, depending on where you live, it just might not be enough to cover everything. When moving to one of these more expensive cities, definitely keep that in mind.

Until Tomorrow!

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