I do the job of a senior engineer and yet am paid a bit less than what's listed for an entry level engineer. And I live an incredibly comfy life. What's the catch? Are these for more than 40 hours a week? Is silicon valley really that expensive? Or are they literally giving college grads enough money to retire by 35?
There is not necessarily a catch. Pay is not based on cost of living -- it's set by market rates, and the market rate for software engineers in these areas who can do the jobs required at these companies is high. All these companies operate at an immense scale where an engineer, through what is often a simple change, can add significant value to the company.
So, yes. For now, these companies are giving college grads enough money to retire by 35 (assuming the college grads are halfway financially savvy).
Pay is partly based on cost of living, and cost of living helps to set the market rates.
You'd have to pay me 10 times more than I get now, with a huge hiring bonus, to make me move to San Francisco. I'm not alone in this thinking. This is why the market rate is high.
Part of that is sort of circular, due to the bidding war for housing. Part is that some people just hate the political insanity. Part is that people have family connections elsewhere and they have hobbies that are incompatible with San Francisco.
Let’s say you’re the median American SWE getting paid $80k a year. You’re saying you wouldn’t move to SFBA for less than $800k/yr in total compensation? I find that hard to imagine.
I can see what it costs. Getting $800k/yr means a house of about $1,600,000 should be affordable, but that gets you trash. Getting a "house" that PHYSICALLY TOUCHES the neighbor's house will go for more than that in a semi-tolerable San Francisco neighborhood. That is substandard living conditions.
$1.6m will get you 2,200 square feet of sweet, sweet detached single family living in Pacifica, Berkeley, or Marin. Double an $80k annual income will get you a 640 square foot home with $250/square foot land and construction costs, so not a particularly high end or spacious place.
Briefly looking at redfin shows that my 500kish house would be 3.5 millionish in Mountain View. Similar in SF but it's a lot harder to find a directly comparable house. That's a 14k monthly difference in the mortgage. Equivalent to 240k annually after taking taxes into account.
Using that number means I'm roughly at par with a FAANG salary given my level. But it's not like the FAANG engineer is setting fire to that 240k. Depending on where you are in your amortization schedule 20-80ish % of your payment goes to principle. And my 500k house is probably going to be worth 800k in 10 years while the bay area house would be 4.5-5 million. When you take that into account I'm probably at 70% of an equivalent FAANG position.
The more important thing to look at here is risk. FAANG salaries and bay area real estate prices are out of whack with the fundamentals. If you get in and out without the bubble bursting you're sitting pretty. If it bursts or even has a 10% correction the FAANG engineer is way behind.
One can rent a perfectly decent home in Cupertino with 3 bedrooms and 3 bathrooms for under $4,500 [1]. Price to rent ratios are very high for most SFH properties, so renting is often the right move. This will allow families to send their kids to public schools ranked among the best private schools in the nation for free, without any charter or magnet lotteries. I don't think rent for any comparable home in, say, Austin is more than $2,000/mo cheaper, or $40,000 before tax. That's a much narrower gap to justify than most of the hyperbole in this thread and especially narrow if both partners are working: job opportunities in the Bay Area are strong for almost all kinds of professions.
How do you afford housing wherever you make $80k? Unless literally everything comparable costs 10x in SF, there's no logical way you can say 10x is the mark at which SF wages are pegged at.
You read through all the advice in these blogs [1][2]. Seriously.
If you are invested in low cost index funds, most assume you can safely withdraw 4% a year and not deplete your principal. If you're retiring at 35, you might want a greater safety margin, so let's say 3%. That gives you 60K a year.
How do you retire on 60K a year? Obviously take what I'm saying with a grain of salt as I'm a relatively young person and haven't done any of this yet. But...60K is the median household income in the US, so half of families in the US live on less. If you're retired, you can probably save in ways others can't. For instance:
* Housing. You don't need to stay in a high cost of living city, so move to a much cheaper area (maybe a college town).
* Education. You have much more time, so send your kids to all public education, and use your extra time to educate them further.
* Debt. You have a ton of assets. Why hold any debt?
* Automobiles. Bike instead, if you're physically able.
* Health. Probably the hardest one since insurance in the US is tied to employment. I understand the recommended approach here is to pay out of pocket for a plan, but many have trouble with this. Of course, the standard advice is to use the extra time you have due to retirement to stay as healthy as possible, but I acknowledge this isn't a perfect plan.
Good advice. Just one nitpick: The 4% rule, which states you can as a rule of thumb safely withdraw 4% of the starting capital per year in real dollars (IE increase it each year to account for inflation), is intended for a standard retirement period (65+) and does expect the principal to decrease.
There's more debate as to what would be a safe withdrawal rate over the long term without depleting principal, but I expect 3% would be a bit on the high side, although not unreasonable if one has a backup like part-time work.
Of course, that's assuming you withdraw 3% of the initial amount each year and adjust for inflation. Obviously if you only withdraw 3% of the current amount each year you'll never run out, by definition, but you might end up with shrinking spending money.
Still, just a nitpick. I agree with you in principle for sure.
That's a bit incorrect. Returns from a typical investment portfolio have been over 4% for the last 10-20 years, so that's the amount you can withdraw without depleting any principal. If you're looking to consume your whole principal by the time you die you can go way ahead of 4%, easily double that.
We've basically been in a continuous bull market over the past 11 years; it's not a representative sample. Nor is any period of 10-20 years nearly long enough to tell you much about long term stock market returns. Plus, valuations (ie P/E or P/B) are significantly inflated currently compared to the past. Since valuations can't inflate forever, future market gains over the long term are expected to be lower than past.
In addition, we're talking about a real withdrawal rate; a 4% real rate of withdrawal will be approximately a 6% nominal rate assuming inflation sticks around 2%. It's very unlikely you're going to maintain that from a balanced portfolio over the long term without depleting principle at all. Might be possible with an all-stock portfolio if you get lucky, but significant chance of failure if you get a poor sequence of returns.
> Returns from a typical investment portfolio have been over 4% for the last 10-20 years, so that's the amount you can withdraw without depleting any principal.
Past results do not guarantee future performance. People in the FIRE community generally look at market performance since the final decades of the XIX century. For many, even these numbers do not guarantee anything, as the growth during these days reflected USA entering its golden age. Who knows if it will last through XXI century.
at this point a reasonable response is "there are no guarantees". If the 4% rule was back-tested through the great depression and generally came out fine, it's probably in the right ballpark.
As another FIRE blogger puts it, "3% or less is a near sure bet as anything in this life can be"
Monthly expenses = 3k mortgage+ 500 property taxes + 2k daycare for one child(or 529) + 1.5k for food and other = 84k
Without compounding interest you need 10 years to get 2m, and these salaries are for 5+ or more years of experience. (And you need down payment, etc.).
Living in those areas is expensive.
If you are making 500k, that's a different story :-)
Yup, I forgot about it. 7-8k max out of pocket (in-network) for family. In some companies there is also some payment for the health plan out of pocket. But the diff here is that on HSA plans the out of pocket comes before taxes.
With no or self-sustaining offspring, you can retire on $US2M in savings just about anywhere in the world; not silicon valley and a handful of similar locations. Most of the world, including many places you would consider holiday resorts and amazing places to live, is quite achievable if you stay away from boats, fast cars and gambling. Its how people doing the same job in other cities get by earning half as much.
Easily by not living in the Bay Area. People FIRE at 1 million, which I always found a bit silly considering we're in the midst of an amazing market hyperinflated by some rather concerning fiscal policy, but with 2 you can weather a lot of bad years.
Family with kids in a big, expensive city? Probably not.
That's assuming you want to leave the whole 2 million principal in your will to your children. I don't see why - if you want to retire, you can consume the whole principal while you live.
You can't plan to spend your last dollar on your deathbed unless you can predict every expense, the market, and the day you'll die, especially over a retirement that long (potentially 50+ years). Planning to leave something behind is really your only chance, unless you're comfortable with a very high chance of bankruptcy along the way.
Even at a meager 2% interest that’s $40k a year. That’s a comfortable wage in much of the USA, especially if you’ve been camping in an RV for a decade to retire.
I don't believe anything I read on HN about the lifestyles of the SV elite, but I think this scenario is comical if it were representative.
You get paid well into six figures but have "to camp in an RV for a decade", and then you retire with a $40K income. You could have just gotten a $40K job at some place* that didn't kill your soul! In ten years, you'd be making at least $60K. And if you burned out for whatever reason anyway, you could go on disability.
Now I wonder how many of these jobs are 100% work from home. I'm not sure a salary doubling could take me away from my family and into commuting an hour a day. But I mean, if they're going to pay me to engineer in my pyjamas, sure! =)
None of them are 100% work from home. Work from home pays work-from-home market rates, not high end silicon valley rates. There will be some, but they will have negotiated a switch from office work to remote work after a few years, or have hard to source specialist skills.
I effectively have 100% work from home for a FANG. I live in the Midwest and my compensation is the same as engineers working from HQ. I worked from HQ for a few years then told my manager I was gonna quit to move closer to family and we ended up being to arrange this. I fly to HQ a few times a year to have face time with my team. Not sure how long this arrangement will last, but it’s been awesome so far.
I'm a senior engineer at FAANG, work 40hrs/wk, and get paid $400k+/yr.
The cost of living is higher, but it's well under the increase in pay for being in the area. My current living situation is actually pretty cheap; I split a 4BR house, live 7 min from work, and pay $1650/mo for my portion of rent/utilities.
Most people I know tend to get 2BR apartments and split it with someone, usually paying $2000-2500/mo.
You're also stuck renting, with three other people, with a $400k salary. Conversely, I bought an 1800sqft house in upstate New York, alone, and the total per month is roughly $1400(mortgage, property/school tax,utilities).
He’s not “stuck” renting, he’s choosing to rent because he wants to save money and doesn’t mind having roommates. You can absolutely afford your own apartment on far less than 400k/year in the Bay Area.
So? Not everyone is brainwashed by their banal suburban upbringing into thinking that home ownership is the highest state of enlightenment a human can achieve. I can afford to buy a place outright in cash but I still rent because I like the flexibility and have no interest in betting a large fraction of my net worth on the direction of real estate prices.
Home ownership is the strongest correlating factor with financial independence and overall net worth. Even in the Bay Area, owning a home and the equity in it is generally the most critical asset financially independent people have.
I'm not going to claim renting is universally bad, as it has some upsides (mainly flexibility), but it's definitely financially less savvy than buying, and is generally something you wouldn't want to optimize for at high salary.
You know whats an even stronger correlating factor? Having $400k liquid per year.
Homeownership is advertised as owning an extremely leveraged illiquid asset whose margin calls take years, which is the only reason why it works for people that don't have enough cash to be financially independent another way.
Dunno, what’s the return on property, less maintenance turnover and annual wealth taxes vs the market? What’s the risk of dumping so much capital into exactly one asset vs a stock portfolio?
Additionally, I'm slightly concerned about a possible real estate bubble + I'm not sure if I plan to live in South Bay for 5+ years (the usual amount of time needed to keep your house for it to be worth it financially).
It's not that I can't afford a house, I can; I'd just rather have my money in an index fund and rent instead right now.
I find it hard to believe that you're reading HN while still being surprised about the cost of living here?
By the time you're 35, you'll probably have a family with kids. You don't want a long commute to spend more time with said family so your 2000 sq.ft. house on a 7000 sq.ft lot will cost between $1.5M to $2.5M.
You won't get any needs-based financial compensation to send your kids to college, yet chances are that you don't want to deny them going to the best college that they'll accepted to. Add another $200K per kid if they're going to a UC school.
Everything is going to be a bit to a lot more expensive than elsewhere. Childcare, the electrician and plumber who charges $175 per hour (they need to live too), eating out etc.
$400K in yearly pre-tax compensation reduces to something like $250K after tax?
There's no way you're going to retire at 35, unless you're willing to give up on a lot of niceties of life before bailing. I don't know anyone who did.
That's a lot size, not a house size brotato. That's 0.16 acres, which is actually below the standard lot size in the US for most houses. Standard lot size in the US is around 0.25 acres.
2000sqft is a larger home, but not absurd if you're married and have two kids.
Nobody needs a luxury car. Nobody needs to eat at nice restaurants. Nobody needs vacations in Europe. Nobody needs a $1000 phone.
But if I had to choose one thing where I have no problem spending more than what is strictly needed, it's going to be the place in which I'll be spending the vast majority of my time for the rest of my life.
If it makes you feel any better: for the low end of my range ($1.5M), you're not going to get that 7000 sq.ft. You'll be buying a house on a 3500 sq.ft. lot, so the argument still stands.
As others have said, the catch is incredibly high cost of living. The housing market has grown by something like 10%-15% annually, for years.
Obviously, it can't grow like that forever - even professional couples have problems pooling together money for a down-payments on decent median priced homes.
And while you're building equity by owning, you're also kind of stuck to keeping up with salaries / career trajectories.
But you know, with higher salaries comes more purchasing power. And then you also have foreigners parking their assets in the housing market, similar to what's happening in NYC and Vancouver.
It's hard to compete even with a nice $500k salary, when some foreign investor can casually overbid you with millions in cash.
Sounds a bit dramatic, yes, but that's life in most cities with hot markets and high salaries.
Yes yes yes oh my god yes. Rent eats most of the difference. 300$/mo for a parking space, etc. However, non-local things (like amazon purchases) are the same price everywhere, so you still have lots of purchasing power for those things.
> Or are they literally giving college grads enough money to retire by 35?
Only if you play it right. If you have a high-earning spouse or are willing to live with multiple roommates into your thirties, have no kids, rent an apartment, and live modestly + save diligently. Want to live alone and get food and drinks with your friends every day? That will seriously handicap any strides towards financial independence until you're nearing the 300k range, and even then it takes you from "rocketship bank account" down to "really great life". Very much a first world problem, but if the goal is "retire at 35", the distinction matters.
You have to keep in mind that a 1br apartment in a second tier area will run you like $2k, and that will not be an especially nice apartment. That seriously cuts into the "retire in 10 years" plan.
Go on Zillow or Redfin and look at Bay Area housing prices near major tech companies (Cupertino, Mountain View, Palo Alto, San Francisco) and you'll see that 1 million dollars is entry level for a single-family home, and ~700k is entry-level for a condo that has HOA payments ~400-500 per month.
That's the bottom line -- cost of living is so high the salaries need to be high too, or people won't accept them.
You're implying high housing prices cause higher salaries when it is almost certainly the other way around. High salaries and limited supply seem to be the key causal factors in high housing prices.
It's a vicious cycle. People are still coming to the area and they demand high salaries because housing prices are high, and housing prices are high because of the high salaries of people already living in the area.
> Or are they literally giving college grads enough money to retire by 35?
This is it.
All the answers about Bay Area Cost of Living are just as applicable for people making $150k and would be the same answers if those were the "high salaries" being paraded around.
All thats happened is that the tech sector has multiple of the largest publicly traded companies in the world, all in one place, and its brushing up against the compensation style that the finance sector has had for decades, which has always been divorced from cost of living and closer to the value brought to the organization. Its a good deal with a lot of potential to get better, or the market slows down and it gets worse.
