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Not Making It In L.A. On $75K

Jun. 05, 2018 9:06 AM ET146 Comments
Laurence Kotlikoff profile picture
Laurence Kotlikoff


  • $75K sounds like a great starting salary for a college grad.
  • It's far above the U.S. median wage.
  • But given CA's taxes and L.A.'s housing costs, making it in L.A. is no picnic.
  • But some belt tightening and a spending machine can save the day.

Keeping track of inflation over time is hard even for economists. I recently was talking to a friend's son - I'll call him John Doe - who just graduated from Harvard and is starting a job in L.A. at $75K. That seemed like a lot - far beyond what anyone I knew graduating college received. But then I realized that inflation may have a lot to do with my thinking $75K was high. When I graduated, back in 1973, $75K was the same, in real terms, as $42,700, i.e., 45 years of inflation can make relatively small numbers seem much bigger than they are.

Next I realized that it's been a long time since 1973 and that I don't remember how well one could live back then on $42,700 just as I don't know how well one can live on $75,000, let alone in L.A., on that annual income. So I used my personal financial planning company's spending machine - Smarter Personal Financial and Retirement Planning Software | MaxiFi Planner - to think this through. What I found surprised me. But then I thought of ways that John might salvage his situation.

Here's the resulting short economic story.

Twenty-two-year-old John Doe just graduated Harvard with a job in L.A. Best yet, it pays $75K per year! That’s well above Americans’ median pay. John also landed a great two-bedroom apartment. Yes, it costs $2,000 per month. But rents in L.A. are out of sight.

After signing his lease, John, who majored in economics, decides to compute an annual spending budget. He figures he’ll work till age 60 and hit the beach full time. His job has no retirement plan. Bummer. But, gee, his salary is really high. And, unlike many of his classmates, he has no student debt to pay off. He’s sure he’ll be able to spend at least $3K per month. But then he

This article was written by

Laurence Kotlikoff profile picture
Laurence J. Kotlikoff is a William Fairfield Warren Professor at Boston University, a Professor of Economics at Boston University, a Fellow of the American Academy of Arts and Sciences, a Fellow of the Econometric Society, a Research Associate of the National Bureau of Economic Research, Head of International Department for Fiscal Sustainability Studies, the Gaidar Institute, President of Economic Security Planning, Inc., a company specializing in financial planning software, and the Director of the Fiscal Analysis Center. Professor Kotlikoff is a NY Times Best Selling author and an active columnist. His columns and blogs have appeared in The New York Times, The Wall Street Journal, The Financial Times, the Boston Globe, Bloomberg, Forbes, Vox, The Economist, Yahoo.com, Huffington Post and other major publications. In addition, he is a frequent guest on major television and radio stations. In 2014, he was named by The Economist as one of the world's 25 most influential economists. In 2015 he was name one of the 50 most influential people in Aging by Next Avenue. Professor Kotlikoff received his B.A. in Economics from the University of Pennsylvania in 1973 and his Ph.D. in Economics from Harvard University in 1977. From 1977 through 1983 he served on the faculties of economics of the University of California, Los Angeles and Yale University. In 1981-82 Professor Kotlikoff was a Senior Economist with the President's Council of Economic Advisers. Professor Kotlikoff is author or co-author of 19 books and hundreds of professional journal articles. His most recent book, Get What's Yours -- the Secrets of Maxing Out Your Social Security Benefits (co-authored with Philip Moeller and Paul Solman, Simon & Schuster) is a runaway New York Times Best Seller. His other recent books are The Clash of Generations (co-authored with Scott Burns, MIT Press), The Economic Consequences of the Vickers Commission (Civitas), Jimmy Stewart Is Dead (John Wiley & Sons), Spend ‘Til the End, (co-authored with Scott Burns, Simon & Schuster), The Healthcare Fix (MIT Press), The Coming Generational Storm (co-authored with Scott Burns, MIT Press), and Generational Policy (MIT Press). Through his company, Professor Kotlikoff has designed the nation's top-ranked personal financial planning software and Social Security lifetime benefit maximization software. Professor Kotlikoff has served as a consultant to the International Monetary Fund, the World Bank, the Harvard Institute for International Development, the Organization for Economic Cooperation and Development, the Swedish Ministry of Finance, the Norwegian Ministry of Finance, the Bank of Italy, the Bank of Japan, the Bank of England, the Government of Russia, the Government of Ukraine, the Government of Bolivia, the Government of Bulgaria, the Treasury of New Zealand, the Office of Management and Budget, the U.S. Department of Education, the U.S. Department of Labor, the Joint Committee on Taxation, The Commonwealth of Massachusetts, The American Council of Life Insurance, Merrill Lynch, Fidelity Investments, AT&T, AON Corp., and other major U.S. corporations. He has provided expert testimony on numerous occasions to committees of Congress including the Senate Finance Committee, the House Ways and Means Committee, and the Joint Economic Committee.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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