‘Doom and anxiety on a daily basis’: I’m 27, earn $83k in LA, and spend half my income on rent. Can I ever retire or is the middle class dream slipping away?

Hi Money Minder,

Is it even possible for me to be considered middle class? Wondering if I can ever retire!

I’m a 27-year-old woman living in Los Angeles, where the cost of living is super high. I make $83,000 a year but end up spending half of my net income just on rent.

Here’s a quick snapshot:

401k: $4,100

HOUSING: $8,000

Right now, I’m only putting 2% of my income into my 401k (a retirement savings plan). It’s not much, but it’s all I can manage without sinking. Every day, I feel stressed and anxious.

I don’t see myself moving out of LA, having kids, or buying a home in the future. But rent here is insanely high – I pay $2,264 a month on rent out of my $4,500 take-home pay.

Moving isn’t an option because I live close to my boyfriend and need to have my own space for my cat and my sanity.

Have you got any advice, Money Minder? I’m really feeling stuck here.

Feeling Lost

Response from THE MONEY MINDER:

"Hello There,"

Hello,

It sounds like you’re experiencing a lot of stress around your financial situation, and that’s completely understandable given the circumstances you’ve described. Living in a very high cost of living (VHCOL) area like Los Angeles while earning an income of $83k and spending a significant portion of your take-home pay on rent can indeed be challenging.

First, let me acknowledge your feelings of doom and anxiety—you are not alone in this, and many others in similar situations share these concerns. However, there is hope, and there are practical steps you can take to improve your situation and work towards a secure retirement.

Given that half of your net income goes to rent, finding ways to reduce your other expenses is crucial. Even small adjustments can have a significant impact over time. Consider creating a detailed budget to track your spending and identify areas where you might cut back. This might require some difficult choices but remember, any reduction—no matter how small—will help.

In terms of your retirement savings, contributing only 2% to your 401k is a modest start, but it’s a start nonetheless. If your employer offers a match, ensuring you contribute enough to get the full match would be beneficial as it’s essentially free money. When your financial situation allows, gradually increasing your contribution, even by 1% increments, can significantly impact your retirement savings without drastically affecting your daily budget.

Additionally, look for ways to increase your income. Can you take on freelance work, side gigs, or advance in your current job? Any additional income can help ease your current financial strain.

Since you don’t plan on leaving LA, having kids, or buying a home, you have flexibility in terms of future financial commitments. Focus on building an emergency fund if you haven’t already, which can provide a buffer and reduce anxiety related to unexpected expenses.

Lastly, take care of your mental health. Financial stress can be overwhelming, but setting achievable goals and celebrating small wins can offer a sense of progress and control.

You are taking some great steps already like contributing to your 401k and acknowledging your financial constraints. Continue moving forward, focusing on what’s within your control, and gradually improving your situation.

Best of luck, and take it one step at a time.

Sincerely,
THE MONEY MINDER