160K after taxes, NYC, and living costs? Forum

[bk1]

OP here, responding for the first time. Home market isn't Texas, but I guess people are interested in it?

I just want to make sure that I won't be "scraping by" like the first response suggested. If I'm going to be living in NYC I want to make sure I'll be living it up, since I'd be trading in lots of savings for that NYC life.

I'm not sure biglaw associates can be considered to be "living it up."

[haiking]

Depends entirely on the interest rate. Lots of federal loans have such hilariously high rates right now that you'd have to take on a lot of risk to even have a chance of making the investment payoff down the line while experiencing shitloads of volatility along the way.

Tax advantaged retirement accounts are nice, but so are high guaranteed rates of return (which is what you get from paying down debt).

First, putting $5k in a retirement account nets you more take home money than $5k in loan repayments due to decreased tax liability.

Second, because savings accounts appreciate in value as you save, whereas loan accounts depreciate in value over time as you pay them off, the absolute "return" is more when you save than paying off loans. (i.e., saving 10k at 5% and reinvesting the interest nets you more money than the interest saved vs. paying off a $10k at 5% over time).

Federal loan interests may be high (up to 7.9%?) but it's about equal to the expected annual market return of the S&P500. There is no situation in which I would pay off a federal student loan if I could sock that money into a 401k.

This is a mix of stupid and wrong I am too tired to sort out. See generally the personal finance thread and anybody who knows that they are talking about who has ever written or thought about this issue.

Thanks. That seemed inaccurate to my basic math skills, but I was wondering if there was some odd way that the finance world worked that meant my math was wrong. I'm glad to hear that is not the case.

[jbagelboy]

OP:

It was mentioned above, but when looking at salary data, recall that in most markets outside of NYC, the bonus and raise schedules are lower than the top large vault firms in New York. Your first year might be $175k pre-tax in new york, but it would grow to over $200k by your third year. So your transition period out of law school with loan payments may be modest, but as time goes on your adding more to your discretionary income in NYC than you would be in most secondaries. It would probably even out before you left the firm (and ny vault firms will definitely be more lucrative if you stuck it out to partner).

[anon919]

Searched around for this but people seemed to disagree (or the answers were from more than three years ago). Would be interested in seeing what current 1st or 2nd years are taking home after tax cuts in Manhattan. Plus how much you are spending on living costs (everything before savings/loan payments, basically). Trying to decide between NYC big law and home market right now, thanks.

Good friend of mine is a 3rd year (or starting his 3rd year) at a V5. We have talked about this because I was in same boat between Texas and V5 firm.

He said his take home after Taxes were 96 as a first year associate. He spent 2,700 a month on a one bed one bath (about 725-775 sq feet) so thats about 32k a year. This of course doesnt include loan payments, utilities, cable, food, going out, etc. He said that after his first year he checked how much he paid on his loans (he put every penny he could towards them) and he only put 32k toward his loans the first year.

This was a big factor in why I decided to go with Texas over NYC. Take home will be about 15-17k more a year. You will probably save 1,200 a month on rent (another 14k). Plus a ton on food, going out, etc. I think the difference is like 35k a year in the bank when all is said and done. Though, if your home market doesnt pay NYC this is a different story.

Can any other current associate speak to the bolded portion above? Is that accurate based on the $160k scale?

[Anonymous User]

2700k as a first year in NYC for rent is really living lavishly. You can easily do 1500 with a roommate and have a reasonably respectable place. No need to be pissing away 2700 on rent as a first year when you have loans.

It may be "lavish" in the sense that it is a lot of money to be spending on rent that most people in this country couldn't or wouldn't do, but $2700 doesn't get you very far. Right now I believe the micro-apartments are going for $2k and those are 180 sq/ft, murphy bed and all. Far from lavish. $2700 might get you a decent place outside of Manhattan, but I wouldn't consider an hr commute to be "lavish" either.

[Anonymous User]

Searched around for this but people seemed to disagree (or the answers were from more than three years ago). Would be interested in seeing what current 1st or 2nd years are taking home after tax cuts in Manhattan. Plus how much you are spending on living costs (everything before savings/loan payments, basically). Trying to decide between NYC big law and home market right now, thanks.

Good friend of mine is a 3rd year (or starting his 3rd year) at a V5. We have talked about this because I was in same boat between Texas and V5 firm.

He said his take home after Taxes were 96 as a first year associate. He spent 2,700 a month on a one bed one bath (about 725-775 sq feet) so thats about 32k a year. This of course doesnt include loan payments, utilities, cable, food, going out, etc. He said that after his first year he checked how much he paid on his loans (he put every penny he could towards them) and he only put 32k toward his loans the first year.

This was a big factor in why I decided to go with Texas over NYC. Take home will be about 15-17k more a year. You will probably save 1,200 a month on rent (another 14k). Plus a ton on food, going out, etc. I think the difference is like 35k a year in the bank when all is said and done. Though, if your home market doesnt pay NYC this is a different story.

Can any other current associate speak to the bolded portion above? Is that accurate based on the $160k scale?

Also interested in this. I don't understand how one is paying $64K in taxes per year. I looked at just federal taxes and that is only $35K or so. So there's really $30K in state/local taxes?

[lukertin]

This is a mix of stupid and wrong I am too tired to sort out. See generally the personal finance thread and anybody who knows that they are talking about who has ever written or thought about this issue.

Lol. Maybe you should do more than think or write about an issue that only involves math.



The above chart shows the difference between someone who saves 10k a year and pays off his 100k loan at 10k a year, vs. someone who pays off his 100k loan at 20k a year. Assumes interest rates of 8% for both. The guy who saves 10k a year is better off than the guy putting 20k a year at his loans.



This chart shows the difference between someone who saves 17k a year and pays off his 250k loan at 40k a year, vs. someone who pays off his 250k loan at 57k a year. Assumes interest rates of 8% for both. Again, the saver comes off better (although only slightly--I think I counted an extra year here which actually means Person A is actually about $7k better off).

This doesn't even count the fact that saving in a 401k is pre-tax, which is better than using post-tax money because 10k post-tax is worth like 16k pre-tax at the high marginal tax bracket for a 160k/yr income earner.

Is there a scenario where doing this is unwise? Sure, if you're paying off credit card debt because it's (gasp) really high interest, which is what those people actually refer to when they're discussing the pros and cons of saving vs. paying off debt.

[AllTheLawz]

OP:

It was mentioned above, but when looking at salary data, recall that in most markets outside of NYC, the bonus and raise schedules are lower than the top large vault firms in New York. Your first year might be $175k pre-tax in new york, but it would grow to over $200k by your third year. So your transition period out of law school with loan payments may be modest, but as time goes on your adding more to your discretionary income in NYC than you would be in most secondaries. It would probably even out before you left the firm (and ny vault firms will definitely be more lucrative if you stuck it out to partner).

Compressed raise scales are pretty much a thing of the past for many of the firms paying 160 in Texas, Chicago, Boston, etc. This comes into play when you are talking about places where market is below 160 (Atlanta, for example).

There is pretty much zero financial justification for NYC over pretty much any of the 160k non-NYC/DC/SF markets. Even if you were to somehow make partner, (contrary to random TLS think) the salaries vary mainly based on individual performance rather than strictly location. I guarantee you a rainmaker in V&E's Houston energy practice has the same salary potential as a cap markets rainmaker in NYC.

[AllTheLawz]

Searched around for this but people seemed to disagree (or the answers were from more than three years ago). Would be interested in seeing what current 1st or 2nd years are taking home after tax cuts in Manhattan. Plus how much you are spending on living costs (everything before savings/loan payments, basically). Trying to decide between NYC big law and home market right now, thanks.

Good friend of mine is a 3rd year (or starting his 3rd year) at a V5. We have talked about this because I was in same boat between Texas and V5 firm.

He said his take home after Taxes were 96 as a first year associate. He spent 2,700 a month on a one bed one bath (about 725-775 sq feet) so thats about 32k a year. This of course doesnt include loan payments, utilities, cable, food, going out, etc. He said that after his first year he checked how much he paid on his loans (he put every penny he could towards them) and he only put 32k toward his loans the first year.

This was a big factor in why I decided to go with Texas over NYC. Take home will be about 15-17k more a year. You will probably save 1,200 a month on rent (another 14k). Plus a ton on food, going out, etc. I think the difference is like 35k a year in the bank when all is said and done. Though, if your home market doesnt pay NYC this is a different story.

Can any other current associate speak to the bolded portion above? Is that accurate based on the $160k scale?

Also interested in this. I don't understand how one is paying $64K in taxes per year. I looked at just federal taxes and that is only $35K or so. So there's really $30K in state/local taxes?

Not a first-year myself but that is definitely close to right (i.e. within ~5k). In addition to just federal income tax you have Social security, Medicare, State tax, AND city tax.

[Anonymous User]

OP: It was mentioned above, but when looking at salary data, recall that in most markets outside of NYC, the bonus and raise schedules are lower than the top large vault firms in New York. Your first year might be $175k pre-tax in new york, but it would grow to over $200k by your third year. So your transition period out of law school with loan payments may be modest, but as time goes on your adding more to your discretionary income in NYC than you would be in most secondaries. It would probably even out before you left the firm (and ny vault firms will definitely be more lucrative if you stuck it out to partner).

--LinkRemoved--

the highest partner compensations are in silicon Valley. Partnership compensation at the tippity top Vault firms aren't what you think they are.


Also, people should read about issues of attrition in New York Biglaw. Lol at all these lifetime career earnings talk. Get a grip.

Funfact: attrition rates are lower in all secondary markets and significantly lower in some secondary markets.

[Anonymous User]

Apologies for the native New Yorker bias, but:

These threads are always ridiculous to me because people who value different things aren't going to get each other to see eye to eye. To some people, whatever tax break they can get so that they have a bigger 401k is really important. To some people, living in a place like NYC where there are "things to do" is important.

On top of which all of the people raving about secondary markets (and indeed, some of the people living in NYC) insist on having/basing their Well-Thought-Out-Spreadsheet calculations on a luxury condo studio in a building built last year for $2k plus, while ordering Fresh Direct and eating at a five star Yelp review artisanal Name Chef restaurant every night.

You can find a room in a nice part of Brooklyn with one or two roommates for $1000. You don't have to eat out. You will be eating a lot of Seamless anyway. You can "make" "$96k" "work." Trust me. The vast majority of New Yorkers do it on a lot less. Jesus...

[AllTheLawz]

This is a mix of stupid and wrong I am too tired to sort out. See generally the personal finance thread and anybody who knows that they are talking about who has ever written or thought about this issue.

Lol. Maybe you should do more than think or write about an issue that only involves math.



The above chart shows the difference between someone who saves 10k a year and pays off his 100k loan at 10k a year, vs. someone who pays off his 100k loan at 20k a year. Assumes interest rates of 8% for both. The guy who saves 10k a year is better off than the guy putting 20k a year at his loans.



This chart shows the difference between someone who saves 17k a year and pays off his 250k loan at 40k a year, vs. someone who pays off his 250k loan at 57k a year. Assumes interest rates of 8% for both. Again, the saver comes off better (although only slightly--I think I counted an extra year here which actually means Person A is actually about $7k better off).

This doesn't even count the fact that saving in a 401k is pre-tax, which is better than using post-tax money because 10k post-tax is worth like 16k pre-tax at the high marginal tax bracket for a 160k/yr income earner.

Is there a scenario where doing this is unwise? Sure, if you're paying off credit card debt because it's (gasp) really high interest, which is what those people actually refer to when they're discussing the pros and cons of saving vs. paying off debt.

I think the point the person you are responding to is trying to make is that you are paying off interest with 8% rate but 401k is unlikely to have 8% return (more likely in the 4-5% range if all goes well).

[Tiago Splitter]

I think the point the person you are responding too is trying to make is that you are paying off interest with 8% rate but 401k is unlikely to have 8% return (more likely in the 4-5% range if all goes well).

Based on what? Certainly not history.

Lukertin's analysis really undersells the advantages of his plan, because if the 17K put toward savings are pre-tax you get a big tax savings which can then also be invested, and if they are Roth savings you now have a huge Roth balance which will grow tax free into and through retirement.

[haiking]

Also interested in this. I don't understand how one is paying $64K in taxes per year. I looked at just federal taxes and that is only $35K or so. So there's really $30K in state/local taxes?

Not a first-year myself but that is definitely close to right (i.e. within ~5k). In addition to just federal income tax you have Social security, Medicare, State tax, AND city tax.

IIRC, NYS and NYC tax combined come out to just over 10% (16k, I guess) But SS and Medicare definitely take their pound of flesh as well.


@ NY bias.
And yes, people can live in brooklyn, if they don't mind an hour commute each way. If they do live in brooklyn, they will still pay more than someone living just about anywhere in Austin with the same number of roommates.

[Anonymous User]

These threads are always ridiculous because people who value different things aren't going to get each other to see eye to eye. To some people, whatever tax break they can get so that they have a bigger 401k is really important. To some people, living in a place like NYC where there are "things to do" is important.

you're going to be working to death in nyc. what are these "things" to do you speak of? Forget the fact that nobody but multiple-cats-owning shrews love museums and operas.

overall, i agree with you that it is a pointless argument, because people are unlikely to change their initial positions. and the nyc-ers inevitably resort to appeals to "intangibles" (precisely because there no tangible benefits). the objectively legitimate reason for nyc biglaw is the probability of receiving an offer. it makes no sense forgoing nyc for a shot at one of the 20 associate positions in Seattle.

the caveat is that some secondary market firms work you like NYC biglaw for much less money. See e.g., Jones Day Cleveland etc. The difference is that you go home to a big backyard, and get to drive around in a bima, if that's your thing.

[Tiago Splitter]

@ NY bias.
And yes, people can live in brooklyn, if they don't mind an hour commute each way. If they do live in brooklyn, they will still pay more than someone living just about anywhere in Austin with the same number of roommates.

No one is saying NYC isn't expensive, but it's not an hour commute each way unless you live way into Brooklyn. Same with Queens if you work in midtown East or New Jersey if you work downtown.

[thesealocust]

Re: is 96K the right number - just go to paycheck city and play around. Tax rates aren't secrets. 96K is roughly what it comes out to before you account for things like the destructibility of state and local income tax and personal tax circumstances.

Re: attrition - this argument is dumb. Turnover is high, but associates leave for other (highly profitable) firms, other firms in other geographic areas, in house opportunities, government jobs, etc. High attrition is meaningless without context, and the context from big NYC firms (and big firms in other markets) is usually that ending a stint at a firm means moving to something else that's also desirable and/or highly remunerative.

Re: compensation and lifetime earnings - you can make all sorts of weird arguments about rain makers in texas doing as well as partners in NYC or silicon valley having highest comp based on some random report. It is of course largely personal. But if you look at firm profitability and especially firm size, there are a hell of a lot more well paid opportunities for lawyers in NYC than any other city (including things like inhouse gigs in financial institutions). I'm not trying to argue that going to NYC will result in more money over time on average, but if you're trying to reduce the decision to dollars and cents (which, as others have pointed out, is silly) it's worth considering the fact that first year major law firm compensation isn't the only factor - and over the course of a career, will actually be a relatively minor factor.

lots of wrong stuff

No. Just no. Step away from the excel. Bad assumptions, bad math, inaccurate conclusions, too tired to engage, destroy all humans, why do I even still read TLS, etc. Just fucking google "pay down debt or contribute to 401(k)" or something, legions of people have done legions of math on this. The conclusions can have nuance to them (i.e. the answer isn't just 'lel never invest always debt') but you're approaching it completely incorrectly.

[math101]

I think the point the person you are responding too is trying to make is that you are paying off interest with 8% rate but 401k is unlikely to have 8% return (more likely in the 4-5% range if all goes well).

Based on what? Certainly not history.

Lukertin's analysis really undersells the advantages of his plan, because if the 17K put toward savings are pre-tax you get a big tax savings which can then also be invested, and if they are Roth savings you now have a huge Roth balance which will grow tax free into and through retirement.

Aren't you going to get priced out of a Roth IRA with your AGI? If not, can you explain?

[haiking]

@ NY bias.
And yes, people can live in brooklyn, if they don't mind an hour commute each way. If they do live in brooklyn, they will still pay more than someone living just about anywhere in Austin with the same number of roommates.

No one is saying NYC isn't expensive, but it's not an hour commute each way unless you live way into Brooklyn. Same with Queens if you work in midtown East or New Jersey if you work downtown.

If you want a 1000$/month apartment, such as the one suggested in the post I was replying to, you're not going to be in the parts of brooklyn or queens that are convenient to manhattan.

[thesealocust]

For loans vs. retirement savings, see: http://www.bogleheads.org/wiki/Paying_d ... _investing

Importantly:

As can be seen, paying down [debt] affects your net worth equivalently to investing in a risk-free asset with an after-tax return equal to the credit card's interest rate. Note the use of after-tax, as that is an important consideration.

Aren't you going to get priced out of a Roth IRA with your AGI? If not, can you explain?

They removed the income limit for rolling over a traditional IRA into a Roth IRA. It's slightly sketchy, but absent IRS guidance it is currently legal to contribute $X to an IRA and then some time later (many do it a day later) doll it over to a Roth regardless of AGI. Congress did this to encourage people to roll traditionals to roths because that's a taxable event and would increase near term revenue, but it obviously looks like a loophole given roth AGI limits.

[math101]

Aren't you going to get priced out of a Roth IRA with your AGI? If not, can you explain?

They removed the income limit for rolling over a traditional IRA into a Roth IRA. It's slightly sketchy, but absent IRS guidance it is currently legal to contribute $X to an IRA and then some time later (many do it a day later) doll it over to a Roth regardless of AGI. Congress did this to encourage people to roll traditionals to roths because that's a taxable event and would increase near term revenue, but it obviously looks like a loophole given roth AGI limits.[/quote]

That's right. I remember something like this from accounting now. Thanks.

[Tiago Splitter]

I think the point the person you are responding too is trying to make is that you are paying off interest with 8% rate but 401k is unlikely to have 8% return (more likely in the 4-5% range if all goes well).

Based on what? Certainly not history.

Lukertin's analysis really undersells the advantages of his plan, because if the 17K put toward savings are pre-tax you get a big tax savings which can then also be invested, and if they are Roth savings you now have a huge Roth balance which will grow tax free into and through retirement.

Aren't you going to get priced out of a Roth IRA with your AGI? If not, can you explain?

If your company allows for Roth 401k deferrals most of it will be Roth 401k money. You can also contribute after-tax money to a traditional IRA and then immediately convert it to a Roth. So if your company gives you the deferral option you can be looking at 23K a year in Roth money. My recommendation would be to put about half that in and put the rest towards debt, but that's not based on any kind of mathematical model. Just the fact that you want to reduce your debt to give yourself flexibility while also having after-tax funds which can be used in case of emergency. The Roth IRA lets you do that. The 401k tends to be more restrictive with regard to withdrawals, so don't use that as an emergency fund unless your plan has very loose withdrawal/loan provisions.

If you want a 1000$/month apartment, such as the one suggested in the post I was replying to, you're not going to be in the parts of brooklyn or queens that are convenient to manhattan.

I think the key is that you can't live by yourself.

[thesealocust]

Also this: http://www.theonion.com/articles/84-mil ... k-c,18003/

[guano]

Depends entirely on the interest rate. Lots of federal loans have such hilariously high rates right now that you'd have to take on a lot of risk to even have a chance of making the investment payoff down the line while experiencing shitloads of volatility along the way.

Tax advantaged retirement accounts are nice, but so are high guaranteed rates of return (which is what you get from paying down debt).

First, putting $5k in a retirement account nets you more take home money than $5k in loan repayments due to decreased tax liability.

Depends on interest rates. You make a good point that your investment rate of return and your loan interest rate should both be adjusted to reflect tax considerations

Second, because savings accounts appreciate in value as you save, whereas loan accounts depreciate in value over time as you pay them off, the absolute "return" is more when you save than paying off loans. (i.e., saving 10k at 5% and reinvesting the interest nets you more money than the interest saved vs. paying off a $10k at 5% over time).

this is a fallacy. The effect is similar in both directions. Yes, you get more earnings from interest on interest, but the inverse is true that you save more by paying loans off faster, as the interest on a declining balance shrinks.

Federal loan interests may be high (up to 7.9%?) but it's about equal to the expected annual market return of the S&P500. There is no situation in which I would pay off a federal student loan if I could sock that money into a 401k.

Ignoring the tax adjustments, if both are more or less the same, theoretically it shouldn't make a difference. However, there is more volatility and inherent risk in equity investments versus fixed loans. Because of risk premium, if both expected returns are similar, you should pay off the loan. Additionally, there are other benefits to repaying the loan, such as piece of mind. Lastly, I'm not sure where you're pulling that expected rate of return on investments from, but I'll be nice and bite my tongue

Back ten years ago when student loan rates were around 3-4% and expected returns were easily 8%+, it'd make sense to not repay. In the current environment of high student loan rates, low expected investment returns, and high volatility, you'd be crazy to not repay your loans.

[Anonymous User]

What if I don't have student loans? Could I "live it up" then?