California is a failed state

[Ad Orientem]

http://www.theglobeandmail.com/globe-de ... e15928185/

[Tortoise]

Meh. I've lived in California my whole life. I've visited many other states. Frankly, I'd rather live in California--which is why I do.

You can point to any state, county, or city and rattle off a laundry list of everything that's wrong with it. But to be intellectually honest, you also need to make an equal effort to list all the things that are right with it. The article mentioned warm, sunny weather as pretty much the only good thing about California. Not quite.

Yes, taxes are higher here, but salaries are also much higher here.

Simply saying that schools in California are in horrible shape is a gross overgeneralization. Go to a poor black or Hispanic area, and yes, the schools will be horrible. Go to a wealthy white or Asian area, though, and the schools are typically in much better shape with many high-achieving students. California also has some excellent, top-rated private schools.

If California is rated one of the worst states in which to do business, then why are high-paying tech and finance jobs still so prevalent in places like Silicon Valley, San Francisco, Los Angeles, and San Diego? I'm sure some companies choose not to do business here due to the high expense, but that doesn't seem to stop the thousands of other profitable businesses that are still here and going strong.

Water and droughts have always been a concern here. It doesn't mean the end of the world. It just means that people have to actively conserve water and often pay more for it. That's just how we do it here. Life goes on.

California has plenty of issues, but I think every community does. People vote with their feet, and California has been getting a steady stream of those "votes" for decades. Despite its challenges, this state is a great place in which to live and has a lot going for it.

[Pointedstick]

Simply saying that schools in California are in horrible shape is a gross overgeneralization. Go to a poor black or Hispanic area, and yes, the schools will be horrible. Go to a wealthy white or Asian area, though, and the schools are typically in much better shape with many high-achieving students. California also has some excellent, top-rated private schools.

If California is rated one of the worst states in which to do business, then why are high-paying tech and finance jobs still so prevalent in places like Silicon Valley, San Francisco, Los Angeles, and San Diego? I'm sure some companies choose not to do business here due to the high expense, but that doesn't seem to stop the thousands of other profitable businesses that are still here and going strong.

My biggest problem with California was that any place you can actually have one of those nice high-paying jobs and send your kids to a high-performing asian-dominated school is a place where you're basically never going to be able to afford a house if you don't already have one.

I was walking to work a few months ago and saw a "FOR SALE" sign on a house I passed every day. Built in 1969, basic ranch style, about 1600 sf, beautifully renovated interior. List price: $1.3 million. As I was walking back from work later that day, the sign had been changed to "SOLD". There is so much high-powered money chasing the limited inventory of houses that even if you make $100,000 a year, it's almost as if it doesn't matter if you want a house.

And I think it's a largely generational issue. I'm 26, and none of my similarly-aged co-workers who live in the bay area ever expect to be able to afford a house, even those who are saving every penny for it. By contrast, co-workers who are about 38 or older don't really see the problem and most of them live in nice houses. The magnitude of the real estate bubble is lost on them because they already got in.

When I still lived in the area, I saw terrible incomprehension of this phenomenon among anyone who already had a house, and I predict that it will metastasize into a major problem as all the young tech workers start getting married, having kids, and realizing that they don't want to pay $2,000 a month to live in low-quality one-bedroom apartments for the rest of their lives. They will of course be replaced with a new generation of hungry college graduates who see dollar signs, but I predict there will be a continuous outflow of talent as engineers mature and leave so they can actually spend any of the money they earned and start raising a family.

[Tyler]

California has plenty of issues, but I think every community does. People vote with their feet, and California has been getting a steady stream of those "votes" for decades.

All things being equal I'd rather live on the California coast, too.  But things are decidedly unequal in California for the average citizen, which is why so many find a better deal on life elsewhere even with the associated tradeoffs.  (For context, I worked in the Bay Area for 5 years before leaving the state a year ago.)

The larger issue I see is how the "voting with your feet" has shifted the demographics over time, especially considering the high churn of people in and out of the state.  IMHO, California is changing from a land of opportunity for all to an island enclave for the Silicon Valley and Hollywood elite divorced from the reality of the real world, and the state is quickly stratifying between the very wealthy and the very poor while the middle class moves on to better pastures.  Eventually I do believe that the demographic bubble will burst, and we may be seeing early signs of that economically -- your examples of jobs and schools are symptoms of this problem. 

[Pointedstick]

People vote with their feet, and California has been getting a steady stream of those "votes" for decades.

http://www.manhattan-institute.org/pdf/cr_71.pdf

For decades after World War II, California was a destination for Americans in search of a better life. In many people’s minds, it was the state with more jobs, more space, more sunlight, and more opportunity. They voted with their feet, and California grew spectacularly (its population increased by 137 percent between 1960 and 2010). However, this golden age of migration into the state is over. For the past two decades, California has been sending more people to other American states than it receives from them. Since 1990, the state has lost nearly 3.4 million residents through
this migration.

The only reason why California's population doesn't shrink is because of domestic births and immigration from other countries.

[Tortoise]

Excellent points, PS and Tyler.

The economic stratification in Coastal California in particular is striking. There are a lot of super-nice but super-expensive areas (I live in one of them) that are surrounded by extremely poor, troubled communities of minorities that serve the wealthy ones--restaurant workers, resort workers, janitors, etc. The in-between middle-class areas appear to be shrinking as parts of them become increasingly "yuppie" and the other parts become increasingly "ghetto."

California still has a lot going for it if you can afford to live in one of the upper-middle-class areas. Otherwise, I agree that you're probably better off--and safer--living in another state where housing is more affordable relative to the median salary.

EDIT: By the way PS and Tyler, out of curiosity, where did you end up moving?

[Tyler]

It's perhaps a bit trite (as so many Californians seem to be doing it), but I moved to Austin.  I grew up in Dallas, though, so I've got the native Texan thing going for me and we have family nearby.  It was a great decision for us both financially and also mentally.  Austin life just feels more authentic to me. 

[Pointedstick]

I bucked the trend and moved to New Mexico. Zero regrets. Life so far has been 100% better, and a hell of a lot cheaper too.

[flyingpylon]

I bucked the trend and moved to New Mexico. Zero regrets. Life so far has been 100% better, and a hell of a lot cheaper too.

Did you break down on your way to somewhere else?  My sister lives in Albuquerque and she always jokes that everyone she knows was headed somewhere else until they broke down in Albuquerque and ended up staying. 

[Tortoise]

It's perhaps a bit trite (as so many Californians seem to be doing it), but I moved to Austin.  I grew up in Dallas, though, so I've got the native Texan thing going for me and we have family nearby.  It was a great decision for us both financially and also mentally.  Austin life just feels more authentic to me.

That's great. I'm glad you're enjoying Texas. I've heard good things about it over the years but have never considered it as an option for myself since neither my wife nor I have any family or friends in that state.

I bucked the trend and moved to New Mexico. Zero regrets. Life so far has been 100% better, and a hell of a lot cheaper too.

Interesting. I seem to remember you saying a year or two ago that you loved your job in Silicon Valley. So when you say life in New Mexico is 100% better, I'm assuming you're referring to aspects other than your job?

Do you or your wife have any family nearby? It seems like a lot of people my age who are starting to have kids end up moving close to the wife's and/or husband's parents. Aside from the obvious benefits of children being able to see their grandparents frequently, I guess it also significantly mitigates day-care costs when both parents have to work at least part-time.

[Pointedstick]

Interesting. I seem to remember you saying a year or two ago that you loved your job in Silicon Valley. So when you say life in New Mexico is 100% better, I'm assuming you're referring to aspects other than your job?

Do you or your wife have any family nearby? It seems like a lot of people my age who are starting to have kids end up moving close to the wife's and/or husband's parents. Aside from the obvious benefits of children being able to see their grandparents frequently, I guess it also significantly mitigates day-care costs when both parents have to work at least part-time.

I kept my job. Turns out computer stuff can be done from practically anywhere. Imagine that! Telecommuting represents a pretty good deal for silicon valley companies but it'll be terrible for California if more people are able to do their work from out of state.

And yes, a large part of the reason for the move was to be closer to family. My wife and I didn't like the idea of raising our children in a place where we had no family.

Heh, didn't break down in Albuquerque. Did break down in Barstow once. …on Christmas eve. That wasn't the most fun Christmas ever.

[Xan]

That's great. I'm glad you're enjoying Texas. I've heard good things about it over the years but have never considered it as an option for myself since neither my wife nor I have any family or friends in that state.

You've got at least me and Tyler in Austin.  Come on in, the water's fine!

[Tortoise]

You've got at least me and Tyler in Austin.  Come on in, the water's fine!

Well see, there's another good reason to live in Texas. The locals are friendly!

[WildAboutHarry]

The economic stratification in Coastal California in particular is striking. There are a lot of super-nice but super-expensive areas (I live in one of them) that are surrounded by extremely poor, troubled communities of minorities that serve the wealthy ones--restaurant workers, resort workers, janitors, etc. The in-between middle-class areas appear to be shrinking as parts of them become increasingly "yuppie" and the other parts become increasingly "ghetto."

Victor Davis Hanson has written some very interesting pieces here, here, and here, among many others.

He provides a good description of and insight into the valley/coastal dichotomy in California.

[annieB]

Years ago I did some consulting work at a hospital in Hobbs,New Mexico.
It was oil country and most everyone,including most of the doctors,had a
full gun rack in their truck and most carried.

[portart]

Question: What would your net worth have to be to buy a middle class home and retire in San Diego or the LA area?

[Tortoise]

Not sure about the net worth required, but here are some Trulia data (http://www.trulia.com/home_prices/California/) for median prices for homes sold in Sep-Dec 2013.

Los Angeles: $429,000
San Diego: $415,000

Those medians don't tell you very much, though, because it all depends on which part of Los Angeles and which part of San Diego you're considering. On Trulia, when you click on each county, they show you a breakdown of prices by zip code--and the spread is huge.

For example, in Los Angeles County it ranges from $2,450,250 (Santa Monica, 90402) to $78,500 (Lancaster, 93535). In San Diego County it ranges from $2,172,500 (Rancho Santa Fe, 92067) to $82,500 (Jucumba, 91934).

So the question isn't so much, "Can I afford to retire in California?" but rather, "Can I afford to retire in California in an area where I'd actually be willing to live?"

[Pointedstick]

So the question isn't so much, "Can I afford to retire in California?" but rather, "Can I afford to retire in California in an area where I'd actually be willing to live?"

And the answer is usually something along the lines of "Not unless your net worth is several million dollars or more."

[Tyler]

Question: What would your net worth have to be to buy a middle class home and retire in San Diego or the LA area?

Boarding the early retirement train is what pushed us over the edge on leaving California. Retirement in the Bay Area costs more than double the equivalent lifestyle in Texas. The two day cross-country drive shaved approximately 8 years off our required working careers.

For reference, it's cheaper to buy a home in Texas and fly to the California coast every single weekend than it is to live there full time.  We plan to spend many leisurely weeks visiting friends on the west coast and hiking in the redwoods with those additional 8 years.

[Libertarian666]

We need a Texas get-together. I'm in Dallas but could definitely go to Austin on pretty much any weekend.

[dragoncar]

Question: What would your net worth have to be to buy a middle class home and retire in San Diego or the LA area?

Boarding the early retirement train is what pushed us over the edge on leaving California. Retirement in the Bay Area costs more than double the equivalent lifestyle in Texas. The two day cross-country drive shaved approximately 8 years off our required working careers.

For reference, it's cheaper to buy a home in Texas and fly to the California coast every single weekend than it is to live there full time.  We plan to spend many leisurely weeks visiting friends on the west coast and hiking in the redwoods with those additional 8 years.

I'd love to see your numbers on this... Do they include lodging?

[Tyler]

I'd love to see your numbers on this... Do they include lodging?

EDIT -- Short story for the smaller anecdote:
Cost of round-trip flight for two (booked one month out) from AUS to SJC on Southwest: $455.  x4 = $1820.  But our spending is more than $3k a month lower now than before.  Even if our friends are busy and the campgrounds are full, that leaves plenty of money for lodging.  ; )


Long story:
The small 3/1 house we rented in a nice "middle class" neighborhood in Redwood City, CA goes for $1mm today and is rapidly rising (seriously -- that's what passes for "middle class" in the Bay Area these days).  A newer, larger, but comparable 4/2 in north Austin cost us $200k. The neighborhood isn't as walkable, but it's certainly not an $800k difference.

Property tax is 2.6% in TX vs 1.3% in California, but that's still $8k/yr in favor of TX because of the total housing cost.  Using a 4% withdrawal rate, you need $200k in investments ($8k x 25) to cover the property tax delta in perpetuity (I'm excluding Prop13 minutiae for example simplicity) + $800k for the housing principal .  So for housing alone (before insurance) there's a $1mm nest egg delta for a homeowner in TX vs the Bay Area.  If you're wondering, the same house now rents for $3.5k/month.  25x $42k/yr = $1.05mm in investments required to cover rent alone in retirement.  Call it a wash. 

On top of that, I track my expenses pretty religiously on Mint.  Non-housing expenses have been 20% cheaper over the last year in Austin than in the previous year in California.  Some of that is by choice (cutting cable, eating out less) but a lot is simply cheaper gas/food/etc.  Throw in the state tax delta (9.8% vs 0%) in your investment return calculations and the difference starts to get even more striking.

So you can perhaps use that as a baseline for your own calculations based on your personal spending levels.  We live relatively lean lifestyles, so the cost delta more than doubles the money we need to comfortably retire.  As I mentioned, by moving we brought in that timeline from a distant dream to a near-term goal. 

As an aside -- for anyone interested in early retirement, my main advice is to look hard at how much money you really need to spend to be happy.  The more we cut back, the happier we got.  ; )

[dragoncar]

I'd love to see your numbers on this... Do they include lodging?

EDIT -- Short story for the smaller anecdote:
Cost of round-trip flight for two (booked one month out) from AUS to SJC on Southwest: $455.  x4 = $1820.  But our spending is more than $3k a month lower now than before.  Even if our friends are busy and the campgrounds are full, that leaves plenty of money for lodging.  ; )


Long story:
The small 3/1 house we rented in a nice "middle class" neighborhood in Redwood City, CA goes for $1mm today and is rapidly rising (seriously -- that's what passes for "middle class" in the Bay Area these days).  A newer, larger, but comparable 4/2 in north Austin cost us $200k. The neighborhood isn't as walkable, but it's certainly not an $800k difference.

Property tax is 2.6% in TX vs 1.3% in California, but that's still $8k/yr in favor of TX because of the total housing cost.  Using a 4% withdrawal rate, you need $200k in investments ($8k x 25) to cover the property tax delta in perpetuity (I'm excluding Prop13 minutiae for example simplicity) + $800k for the housing principal .  So for housing alone (before insurance) there's a $1mm nest egg delta for a homeowner in TX vs the Bay Area.  If you're wondering, the same house now rents for $3.5k/month.  25x $42k/yr = $1.05mm in investments required to cover rent alone in retirement.  Call it a wash. 

On top of that, I track my expenses pretty religiously on Mint.  Non-housing expenses have been 20% cheaper over the last year in Austin than in the previous year in California.  Some of that is by choice (cutting cable, eating out less) but a lot is simply cheaper gas/food/etc.  Throw in the state tax delta (9.8% vs 0%) in your investment return calculations and the difference starts to get even more striking.

So you can perhaps use that as a baseline for your own calculations based on your personal spending levels.  We live relatively lean lifestyles, so the cost delta more than doubles the money we need to comfortably retire.  As I mentioned, by moving we brought in that timeline from a distant dream to a near-term goal. 

As an aside -- for anyone interested in early retirement, my main advice is to look hard at how much money you really need to spend to be happy.  The more we cut back, the happier we got.  ; )

Haha, my monthly expenses are under $1820 in SF so I'm guessing this won't work out for me unless I really want to inflate my lifestyle.

[Pointedstick]

Haha, my monthly expenses are under $1820 in SF so I'm guessing this won't work out for me unless I really want to inflate my lifestyle.

Let me guess: roommate(s) or rent-controlled apartment, single, no kids, no car, no health insurance/heavily-subsidized company insurance. If not, that's really impressive.

[dragoncar]

Haha, my monthly expenses are under $1820 in SF so I'm guessing this won't work out for me unless I really want to inflate my lifestyle.

Let me guess: roommate(s) or rent-controlled apartment, single, no kids, no car, no health insurance/heavily-subsidized company insurance. If not, that's really impressive.

No, no, yes, yes, no, no.  But I think it would be far more impressive if I got some room mates and ditched the car!

Anyways, I don't think it makes sense to use a million dollar Redwood City house as a baseline when there are far cheaper cities within the bay area proper (if the point is to have a big house for less).