What Keeps Me Up at Night

While I may go on and on about my impostor syndrome at work, what I’m most afraid of is the cost of life. I’m still utterly confused how much money and savings I need to live a happy, simple life in Silicon Valley with a family of ideally 2-3 children and a sane retirement where neither I or my (future) husband do not end up in a government-owned facility.

I need some sort of calculator that can tell me how far off I am to this goal, and a way to understand what that magical number is. At the moment real estate calculators say I can afford a $500,000 home (which is not even possibly in The Bay Area.) And this is with a $110k salary, which I consider to be rather high and unsustainable.

The average cost to raise one kid is $240,000. And that doesn’t even include the cost of college. That is my entire life savings at 30. Just thinking about spending $500k-$600k on having a family of two makes me not want to have children. Even though I’ve finally decided that I do want to have kids. Is it fiscally wise?

I met with a colleague of mine recently who is a senior executive. She discussed a bit how, as the breadwinner of her family, many of her career choices were made based on making sure that she could afford her life with her husband and kids. I’m not sure exactly what the arrangement is (or exactly how much he contributes) but I know I am looking at a life where I will be the primary breadwinner in my family. My boyfriend is likely going to become a high school teacher, with a starting salary of $50k – $60k, if he can find a job. While that’s much better than nothing, and better than a single income, I will have to work – and obtain higher six-figure salaries going forward – to afford my life (or leave Silicon Valley.)

I’m concerned about potential conflicts later in life if/when I have children with my s/o. While I grew up going to art classes and dance lessons (and other school activities which cost additional fees.) I went to sleep-away camp once I entered middle school. My bf, on the other hand, didn’t grow up with any of these luxuries. He participated in some school activities, but nothing that cost additional money. And he didn’t go to summer camp. He didn’t even have his own room. I’m pretty sure when we have kids and I’m sad that we can’t afford to give them piano lessons, he’ll roll his eyes at me.

Obviously kids don’t have to have lives like this to be successful. But these are things that I’ve just always expected my potential one-day hypothetical children to have. And they are expensive. And they cut into other important budget items like retirement savings and healthcare.

I’m terrified of ending up broke and alone when I’m older. My grandmother gambled away her life savings and is barely affording one step above a government-sponsored home. I want to have options when I’m older. And how much do I really need to retire?

“As you begin thinking about how much you’ll need for a comfortable retirement, you may be startled to learn the impact of inflation. At an average annual inflation rate of 3%, your cost of living would double every 24 years.* Your annual income will need to increase each year, even during retirement, in order to keep up with the gradual rise in prices of everyday goods.” — AXA Equitable

Based on the retirement needs worksheet, to figure out how much I need in retirement I have to. This assumes 3% inflation and 5% ROI:

1. Estimate last year’s working salary. Multiply your current salary by the inflation factor from the retirement table below, based on the number of years until retirement.

Years to Retirement Inflation Factor Growth Factor Multiplier
5 1.16 1.28 5.80
10 1.34 1.63 13.21
15 1.56 2.08 22.66
20 1.81 2.65 34.72
25 2.10 3.39 50.11
30 2.43 4.32 69.76
35 2.81 5.52 94.84

So let’s say that I have 35 years until retirement…

My salary last year with bonus was $120,000. So it’s $120,000 * 2.81 = $337,200

2. Estimate 80% of your last working year’s salary… $96000  $269760

3. Estimate the amount that you’ll need from your savings and investments by multiplying line 2 by 12.591…. $1,208,736 $3,396,548.16

4. Enter the amount of your current savings and investments and multiply it by the growth factor from the table to see what the savings would be worth at retirement. So I’ll go with $240,000 * 5.52… $1,324,800

So… if I don’t touch the $240,000 then I have enough????

I’m confused as that $240,000 will need to be used for a house. Does that count as part of retirement savings, or does the total needed for retirement expect this to be outside of your living situation / home?

A commenter explained that I did the math wrong here – well, I misunderstood the directions… I used last year’s salary (2012) versus my expected last year salary, as in the year before I retire, oops. So I actually need to make up a gap of $2M. Which is frightening, but sounds more legit.

According to this calculator, if I want to retire at age 65, and assume $0 for SS income (because SS will be bankrupt by the time I am retired), and I want to live on $80,000 per year, if I put in $20,000 per year to retirement for the next 35 years my retirement savings will last until I am 88. Well, I plan to live to 110, so I’m screwed. Or, I need to put in $30k per year for the next 30 years for my retirement income to last until 101.

This all seems possible without kids. With kids, I really don’t know how I’m ever going to be able to afford retirement. I don’t mind the idea of working until old age if I physically can, but what if I can’t? Or I change my mind later?

And I’m considerably more fortunate that most people in the US with $240k+ in savings and a job paying $110k. Life just seems way too expensive to live.

 

 

 

 

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7 thoughts on “What Keeps Me Up at Night”

  1. The big issue here is that you’re looking to buy a house in the Valley, where everything is just so crazy expensive. Well, that and also you and your boyfriend don’t seem to see eye-to-eye as it comes to finances and how to raise kids (which gives me pause as random internet onlooker).

    Some possible “actionable steps” that come to mind:
    1. Leave Silicon Valley, move somewhere cheaper with your little nest egg.
    2. Be content with renting with kids if you do continue to live in the Valley.
    3. Find a significant other who agrees with you on the fundamentals on child rearing, standard of living, and finances (obviously, easy for me to say as a stranger looking at your situation, but really there seems to be a tension here that’s not going away…).
    4. Work on the skills that uniquely make you stand out, hone those, and jettison your career up further ’til you just can’t no more. More risk, more reward.

    Good luck!

    1. I don’t need to buy a house, but even renting seems impossibly expensive here with kids. It will easily cost $3k+ today to rent a very small house / condo with 3br. That’s today, but in 10 years it will be a lot more. I don’t know if my salary will keep up with the rate of inflation or rental price increases, esp in this are where they seem to keep going up. Meanwhile, I don’t know how much to realistically expect to make ever. $110k seems like a lot to me, but I know it’s really just barely middle class here. How much do people really need to earn to afford life in Silicon Valley? It seems that should be possible for a senior tech marketer (not that I’m there today, but in 5-10 years), but I just can’t imagine earning $200k – $300k unless I get an MBA or start my own business.

      1. I mean chances are the influx of techies, and thus the ridiculous inflation in housing, isn’t going away anytime soon. It’s getting to the point where people really do need to have a high-degree high-tech job to make ends meet in Silicon Valley (thus all the Google shuttle protests, etc). Wheee, gentrification.

        I still don’t believe you’ll be completely priced out of renting a place altogether, but I agree the quality of housing and/or the location you might be able to afford will probably decrease over time. Have you considered how you might fare in other technologically progressive cities? Maybe consider your prospects in Seattle, New York (the Jersey burbs looking almost cheap about now), Boston, and Austin (low cost of living!).

        Alternatively, or simultaneously, you can focus on increasing your income. Why not get the MBA if you see it as a career necessity? What contacts do you need to make and skills you need to hone before you feel ready to start a business? Would the career ladder look different, or would there be a clearer path of promotion, if you chose to go corporate rather than continuing along with start up environments?

        1. I know. It is what it is. The challenge is that I am, sort of, one of those techies. Yes, engineers (esp those at the big companies) pay more, but I’m a marketer at an established startup and thus have been able to make six figures. The big challenge is in what my boyfriend decides to do. If he could also bring home six figures, it might be possible to eek by with a family here. …

          Then again, I don’t necessarily want us to have to eek by when we’re both working FT jobs that earn over 100k. If we have to eek by, he might as well pursue his passion for teaching.

          Increasing my income is an interesting challenge. My friend who is in a somewhat similar manager level role making $120k – $130k base says that I am not being paid enough, but I also know the realities of applying to jobs and not being qualified at this point. An MBA – if I could get into say a Stanford – would certainly help my prospects of increasing salary, but I’m not sure it would offset the $200k+ in tuition, fees, and lost opportunity costs it would cost to get. It’s hard to know. It would certainly open doors to go into C-level positions down the road, but I’m not sure I want that.

          Yes, I’ve considered moving out of Silicon Valley one day. I think it really makes sense to stay here and live as cheaply as possible while I’m still “single” and sans kids. I’m sure the experience of doing marketing in Silicon Valley bodes well for applying to jobs in other smaller tech hubs. My entire family is in New Jersey and on the east coast so I’d have a reason to move back there as well, and yes, it’s surprisingly more affordable as long as you don’t live in Manhattan.

          So I have a lot of choices to make over the next 5 years. I’m sure it will all work out. I just wish I could figure out a way to afford life here, because I really love this area. I have seasonal depression and I have been extremely happy compared to my past life filled with overcast winters. The abundance of outdoor beauty astounds and delights me everyday. I really don’t want to leave. But I will. If it’s this bad now, it’s going to be worse in 5 years when I actually want to buy a house or rent a larger home.

  2. How about moving somewhere with a lower cost of living and finding a job that will pay comparably?

    E.g. You make $110K in a high cost of living area. Find a job at $60K in a much lower cost of living area, and make sure the delta is higher.

    1. It’s something I’ve thought about for sure — I’d make the move after having children and building up my brand in Silicon Valley as much as possible. The only problem is that as a tech marketer I just have more opportunity there (theoretically) and growth prospects could be better here vs somewhere where I could land one $60k job but have no where to go to after that. It’s hard to tell in 10 years where I’d be better of financially. As a teacher, my future husband probably would always be better off in an area with a lower cost of living, though they pay less there too.

  3. I’m pretty late but I just have one comment about the math… I’m pretty sure the first step is estimating that your salary of $120k now will be equal to a salary of $337k in 35 years. So then step 2 should be that you need 80% of that – your salary in the last year you *will* work (vs the most recent year you *have* worked)… then follow the other steps using that number and you’ll get to something more realistic. And terrifying. :-/ Just remember you’re way ahead of most people your age!!

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