Big City Vs. Small Town // Which Is Better for Saving for Early Retirement?

If we were superheroes, and our superpower was retiring early, our origin story would read a little something like:

Mark and Tanja were leading ordinary lives as consumers in Los Angeles when they came upon an artifact from a lost civilization, which bestowed upon them the knowledge that they must change their ways, move to Tahoe and save most of their income to earn their superpowers. Their secret identities — Mr. and Ms. ONL — were born. Motivated by a desire to sleep in, to shred pow and to spread a little good in the world, they meticulously tracked their saving, and unleashed their story on the virtual world of the internet within their emoji-masked disguise, fearing they’d be found out too soon. But finally, the day came when they could drop all the secrecy and live openly with their superpowers.

(I’m positive my actual superhero origin story would be more mutant-based, but that doesn’t come with the same aha moment. So it was either aliens or ancient civilization, and since I recently watched some old Legends of the Hidden Temple, I’m picturing Olmec bestowing the secret on us.)

If you choose to put yourself out there in public with your early retirement story, you find yourself repeating this origin story a lot, perhaps minus the supernatural forces and special powers. And when I tell our story on podcasts or to journalists, this moment happens often:

Someone else (SE): So you said you were living in LA when you started saving. Do you not live there now?

Me: No. We moved to Tahoe when we decided to pursue a different kind of life.

SE: OHHHHH. So that’s why you were able to do it. Because you left an expensive city, and moved to a small town, which I as a big city person assume must mean that the cost of living there is zero, but also that there’s somehow no loss of economic opportunities. (Ed. note: This is only a slight exaggeration.) 

Me: Uh, yeah, not really…

In the past when I’ve talked about city vs. small place saving and retiring, I always had to be vague about where we were, and just talk about our “expensive ski town.” But now I’ll share a bit more. Generally, rankings of cost of living only look at large urban areas, so expensive small places like Vail and Aspen in Colorado and Jackson Hole in Wyoming almost never show up on the list. But when small places are included, here’s where we rank:

Above Washington, D.C. Above OC. Above LA, where we moved from, which isn’t even top 10. (Or it wasn’t when this ranking came out, which is obviously a few years ago given that San Francisco isn’t #1. I’m sure other things have shifted, too.)

Don’t feel too bad for us. We can get this view anytime we want.

And this one.

And this one, too. 

Paying the premium to live here is a choice we willingly and deliberately make, and we feel super grateful that we can manage it, especially given how many people struggle to make ends meet here. According to Sperling’s best places, which ranks cost of living almost everywhere, we’re currently at a COL index of 172, 72 percent higher than the national average, though our old zip code in LA is around 200, so it’s true that where we live now costs slightly less than where we left, mainly thanks to skyrocketing home prices in the big cities. (Reminding anyone else of 2007? I hope I’m wrong.)

But the point isn’t about the rankings per se. It’s about the fact that the origin story of “left the city for a small town” doesn’t automatically mean that you’re able to save more, even if that’s what lots of people’s knee-jerk reactions will lead them to believe. Just as staying in an expensive city doesn’t mean you can’t save quickly, despite those high housing prices. (And a lot like how people tend to think in terms of “high tax states” and “low tax states,” but we actually come out ahead living in “high-tax” California. Ignore the conventional wisdom and take your own look!)

So let’s take a look at exactly this question: what your choice of where to live will do to help or hurt your journey to early retirement.

 

City Vs. Small Town — Early Retirement Savings Potential

Cost of living indices are helpful for making choices about where to move, but once you live in a place already, they may or may not reflect your actual life. Current housing prices in particular are weighted heavily in most indices, but if you own your home and bought it prior to the current market frenzy, or if you have a rent-controlled home, then the housing index of a place isn’t relevant to you unless you decide to move. In that case, what really dictates your cost of living is all the rest — food, transportation, utilities, entertainment, along with the all-important earnings potential. The flip-side is that if you do need to find a place to live in the current economy, all the frugal ninja-ing in the world won’t let you save as much as you might be able to with lower housing prices. But let’s break down each factor.

Economic opportunities — I know that there are folks who like to talk about how no one needs to go to college anymore and can instead learn from Code Academy, and that opportunities are everywhere, but the data tell a different story. Bureau of Labor Statistics data show that the vast majority of workers still have traditional jobs, not gig economy jobs, and that there are huge gaps in income and opportunity between those with and without a college. Which is pertinent to this discussion because of the large divides in what education-level jobs are available in each state. States with a high percentage of jobs that don’t require a college degree or even a high school diploma are largely comprised of rural areas, small towns and small cities. (Our neighbor Nevada seems to be the exception, but only because of Las Vegas. Otherwise it’s a heavily rural state.) This divide is worsening, as whole cities gentrify with rising wages and home prices. So for those who can afford to live in a big city, economic analysis of real wages adjusted for cost of living shows that you do, in fact, come out ahead income-wise in the biggest cities.

In our case: The big vs. small debate never boiled down to earnings potential for us. We had the crazy luck of being able to take our jobs with us, something I can’t teach you to replicate. My office closed around me during the Great Recession, and as the last woman standing, I got to keep my job while losing my office. Taking our city salaries with us to a small town absolutely made the choice much easier.

Transportation costs — In the biggest cities, you may not need a car. (Though tell that to anyone living in LA.) Your commute is likely to be shorter than that of someone coming from the suburbs. You may be able to walk or bike to work if you can’t take public transit. But if you do drive, you may face steep parking charges and higher car insurance rates. In a small town, you likely need a car to get around, or maybe just a bike if you’re hardcore. It’s highly dependent on place, but you may or may not be able to walk anywhere. And you generally have fewer options of ways to get around. The people we know with the highest transportation costs tend to be those who live in distant suburbs and commute to an urban core, and folks living in the small towns or in those urban cores may have high or low costs depending on their circumstances and choices.

In our case: We had one car in LA because Mark worked at home the whole time he lived there, and we lived in walkable neighborhoods where we wasn’t stranded at home while I was off working. But walkable isn’t really a thing in the mountains, and so we needed to add a second car when we moved to Tahoe. And yet, despite adding a car, our month-to-month transportation expenses went down, owing largely to lower auto insurance premiums up here. Consider this: we went from a single, economical car and a smallish condo in LA, to a freestanding house twice the size in Tahoe (still earthquake country, by the way, plus wildfire country) with that same economical car plus a newer, bigger car, and our insurance premiums went down. Car insurance in LA is crazy expensive, because you’re more likely to hit a Ferrari than a Ford Focus. That is something we do not miss! 

Free things to do — The truth is: there are free things to do everywhere. You might need to know where to look, but you can always find them. And in cities, because you just generally have more or everything, you tend to have more free stuff. But you might also have more people wanting to get in on that free stuff, making it less fun or even less possible to attend. If you’re fine hobnobbing with crowds and doing your homework, you can often spend very little to entertain yourself in big cities.

In our case: When we lived in LA, Mark played beach volleyball — entirely for free — all the time. Here in Tahoe, he plays rec league volleyball which costs money, and plays a bit of beach volleyball (still free). But we tend to do much more of the free stuff here, just because there’s less to do generally. In LA, and in DC before that, there were plenty of free things to do but also lots of tempting paid things. And we often went for the paid stuff. With fewer options here, the free stuff rises to the top much more often. And that’s not even talking about the vast network of free trails and free waterways that we now have access to, which is what drew us up here in the first place. 

Prices in general — If someone can come up with a unified theory of consumer prices by geography, please let me know and I’ll share it here, because this one completely befuddles me. I’ve often complained about the “mountain tax” that we pay on everything from groceries to gas prices, but I haven’t shared this set of details: We are less than an hour from the richest agricultural region in the country. We are only a few hours more from a high concentration of oil refineries and one of the world’s busiest ports. We sit right on a major rail line and a major cross-country interstate highway. All of those factors should make our prices cheaper, but instead we pay some of the highest prices in the country for gas, groceries and utilities. And after the trucks and trains pass through here, they continue on into Nevada and Utah where — miraculously! — the prices on those items they were transporting drop to far more reasonable prices. Our workers aren’t getting paid more here. The costs of doing business aren’t higher. So the only thing explaining the mountain tax is some odd formulation of supply and demand. And that’s something that sellers can exploit much more in small towns than they can in big cities. In LA, we could get an electrician or plumber any time for less than $100 an hour because there was more price competition. Here, if we can even get one to come out, we’re paying double or triple that, because there’s so much less competition. Plenty of small towns have low prices, of course, but it’s certainly not a given.

In our case: We now don’t spend much more on general products than we did in LA, but that’s only because we keep our house super cold in the winter, and because we do a lot of our grocery shopping on the other side of the mountains in Reno, where everything costs far less. 

Social opportunities — Think of it like this: does it cost money to spend time with your friends? In big cities where homes are smaller, people are far more likely to meet out for drinks or a meal, where there’s a higher cost associated with that encounter. It’s why there are so many restaurants in Tokyo, because no one has space to entertain. In smaller places where you have a little room to spread out, it’s easy to have people over. And you have fewer places to go out, which might make that idea less tempting. As with all of these things, it’s locality-specific, but the trend of going out to socialize versus inviting people in plays out in urban and rural areas around the world.

In our case: We for sure invited people over in LA, but most often seeing people meant dropping legit cash to go out. Here, we can have people over, or make outdoorsy adventures more social. Sure, I could have gone on urban hikes with friends in LA, but when you each have to spent an hour in traffic to do that, it’s a lot less appealing. 

Diversity and culture — This one isn’t directly a cost or savings question, but it’s important to include in a discussion of big vs. small places. Big cities tend to be much more diverse and full of different cultures than small places are. There are exceptions, of course, but the trend is clear.

In our case: Tahoe is super white. It’s our least favorite thing about it, by far. We miss the cultural vibrancy of LA, and we wish this was a trade-off that didn’t come along with mountain living. But from a financial perspective, fewer cultural events means fewer occasions to spend money, which is a big stretch of an upside. 

Temptation to spend — I saved the biggest one for last. It boils down to: do you live in a place that tempts you to spend more money or less money? If you live in San Francisco and are passing cool shops every day on your way to work, you might feel much more tempted than in a small town where the shops are less plentiful and far less cool. If you’re a foodie, surrounding yourself with interesting restaurants will be a bigger temptation than living in a small place where you’re forced to cook many of the foods you want to try. It’s all about what your biggest spending temptations are.

In our case: I spent a lot in LA. Not on a ton of stuff, because I have never been interested in designer products. But on coffee, juice, restaurant food, and wine. Mark spent a bit, too — takeout coffee every day, y’all — but since he was mostly at home, he was out and about less. Still, takeout dinner was a regular event, and a popular weekend activity was walking down to the wine shop. (We still have a lot of that wine, by the way. Our eyes were much bigger than our stomachs.) Here, I’m way less tempted by everything, and it helps that we can’t walk to a single place where we can spend money. If I truly want to buy something, I have to get on my bike and commit to a real ride or get in the car. I think, though, that Mark may be a bit more tempted to spend here, because of all the outdoors opportunities. While we aren’t buying so many little upgrades to our camping setup, we’ve each bought multiple pairs of skis and multiple bikes since living here, with Mark leading that charge. So while we’ve gotten the restaurant spending in check, we each have a different response to the move when it comes to spending temptation. 

Conclusion

At our Manhattan meetup last month, we met a cool couple who had recently moved from Twin Cities, Minnesota (COL index 109), to the Upper East Side (COL index 261), and they reported how thrilled they are that they are spending less and saving more now — IN NEW YORK CITY — than they used to in Minneapolis. They get paid New York salaries, they no longer need cars, there’s tons of free stuff to do and they aren’t finding themselves as tempted as I would be by all the restaurants and cultural events that surround them. Which isn’t to say that the big city is automatically the way to go. Manhattan is a uniquely transit-heavy place, with no other equal in the U.S. The New York Times‘ analysis shows that leaving the city for the suburbs generally ends up costing people more, which may not be true in every big metro area. And you might just be super tempted by all that retail, all the cultural events that cost big bucks (concerts! Broadway! the ballet!) and all that glorious food that’s available until the wee hours. But it is to say that the cost of living index isn’t everything, or even close to everything, and the way you live plays a huge role in your ability to save for early retirement.

Your turn!

Weigh in! Do you live in a big city, a small city, a small town or a rural area? Was your ability to save part of your decision to live there? Do you wish you could switch to a different place to speed your journey? Have you actively taken steps to move to speed your journey? Let’s talk big vs. small in the comments!