The Pros and Cons of Retiring in California

Key Insights: 

• Many pre-retirees are attracted to California as a retirement destination, but they should weigh both the benefits and trade-offs, forecast scenarios, and integrate retirement planning into their overall wealth management strategy.
• The benefits of retiring in California include no state tax on Social Security benefits, below-average property taxes, access to top-tier healthcare, and a mild climate in many areas.
• Retirees should also consider that California has some of the highest state income taxes in the country, with a graduated rate structure that can reach 13.3%, taxes on some retirement income, and high living costs.

Many people dream of retiring in California, drawn to its pleasant year-round climate, proximity to the beach, and lifestyle. With any big financial decision, such as where you’ll spend decades of your retirement, it’s important to weigh both the benefits and the trade-offs, such as the quality of life it may offer versus the high cost of living and taxes. To better assess whether California aligns with your retirement goals, income, and long-term plan, let’s evaluate the pros and cons of retiring in the Golden State.

The Pros of Retiring in California

There are many reasons California is an appealing retirement destination, including its natural beauty, diverse culture, and access to high-quality healthcare. Here are several benefits of retiring in California:

Taxes

• Social Security Income: Unlike pensions and 401(k) distributions, California does not tax Social Security payments at the state level, which is valuable for managing cash flow in retirement. Note that a portion of your Social Security benefits could still be subject to federal taxes, depending on your combined income.
• Estate or Inheritance Taxes: There are no state estate or inheritance taxes, which can help preserve more wealth for heirs. However, income taxes may apply to assets that heirs inherit and later sell. Retirees should also account for federal estate taxes when planning wealth transfers. 
• Property Taxes: California’s approximate 1% property tax is below the national average. Here are other caveats to consider:
  • Prop 13’s Assessment Cap: Under Proposition 13, a California property tax law, residents receive annual home value assessments that cannot exceed 2%. 
    • This is particularly beneficial for long-time residents who have lived in the same home for decades and whose home values have significantly appreciated. 
    • However, this can make it significantly more expensive to move within California, as the state’s home values are among the highest in the country.
  • Inherited Property Under Prop 19: Retirees may also consider what their heirs will pay in taxes if they pass on their property. 
    • Under another property tax law, Proposition 19, heirs must meet specific criteria to receive a property tax rate based on the home’s purchase value, such as living in the house for a year. The inherited property must also have been the decedent’s primary residence.
    • However, the base rate is only for assessments of up to $1 million. Any excess will be added to the assessed value. If you decide to move to another state, there may be different tax treatments to evaluate.

Diverse Lifestyle & Culture

California offers a wide range of lifestyle and cultural options to meet a range of retiree interests and budgets, including outdoor activities, culinary experiences, and arts and entertainment. Many retirees enjoy the proximity to the beach and mountains, access to Napa Valley’s wine country, extensive dining options, and other activities and events that help them stay engaged and connected.

Access to Top-Tier Healthcare 

California is home to some of the country’s top healthcare facilities, medical research, and specialists. Access to a large network of providers, advanced treatment centers for cancer care and neurological support, and high-quality healthcare systems, including UC San Diego Health and Cedars-Sinai Medical Center, among others, is especially valuable as health needs may evolve in retirement. 

Mild Climate

California’s diverse environmental landscape, with a mild climate and warm winters in many regions, makes it ideal for outdoor living. For retirees who enjoy staying active and spending time in nature, California offers a winding coast, various hikes and trails such as the popular Mt. Baldy Loop, and world-class golf courses, including Torrey Pines, that can enhance overall quality of life and well-being. 

The Potential Cons of Living in California

California has one of the highest living costs in the country,¹ behind only Massachusetts and Hawaii. Retirees should understand how their taxes, groceries, entertainment, travel, and healthcare expenses may impact their retirement, considering the potential effects of inflation over time. In addition to everyday costs, like utilities and gas, here are additional living expenses to consider:

State Income Taxes

California has some of the highest state income taxes in the country, with a graduated rate structure that can reach a maximum rate of 13.3% as of 2026.² Your tax rate is based on your income, filing status, and residency status. Here are factors to consider:

• Retirement Income: The state taxes retirement income, such as pensions and 401(k) distributions, as ordinary income. As previously noted, Social Security is not taxed.
• Residency: There are complex tax rules if you move into or out of California during the year, with requirements for certain state-sourced income, like rental property, capital gains, and IRA withdrawals. Ensure you’re working with a professional familiar with California’s residency rules to understand the associated requirements and avoid costly audits.
• Capital Gains Taxes: Although California does not impose an estate or inheritance tax (if your heirs live in California), capital gains from selling an appreciated asset to pass on to your heirs or for other reasons may trigger income taxes.

Traffic & Transportation

California is notorious for its traffic and congested highways, making it difficult to get around the state. With limited public transportation outside of urban areas and peak traffic to popular cities and destinations, it’s worth considering how travel may impact your daily life in retirement. 

Housing 

Home values and rental costs can be significantly higher than in other parts of the country, varying by city. However, retirees should also consider the higher costs of living in prime areas, such as the coast, which may also come with higher insurance premiums for natural disasters, including wildfires and earthquakes.

Healthcare and Long-Term Care

Even if you are in good health now, your healthcare needs may change in retirement, and Medicare does not cover everything. Still, California is one of the country’s leaders in access to high-quality medical care and treatment.³ We recommend discussing potential costs for long-term, assisted, or in-home care and out-of-pocket expenses for general care.

Family-Related Costs

On average, approximately 50% of parents provide financial assistance to their adult children, exceeding $1,400 per month,⁴ which can quickly deplete savings if not budgeted. Providing support in a high-cost state, such as California, is significantly more expensive. 

Natural Disasters

California’s coastal and mountain landscape attracts many retirees. However, these same environments make the state and its residents vulnerable to a range of natural disaster risks, including wildfires, earthquakes, and flooding. Retirees should account for potentially higher costs for insurance, property damage, or even relocating.

Is It Worth It to Move Out of California for Retirement?

Choosing to retire in California is a highly personal decision that encompasses more than just financial considerations. We often have these conversations with our clients, who balance rising financial costs and shifting needs and priorities with retiring in a sought-after, expensive destination. 

Talk to A Financial Advisor Before You Decide

At Monarch, we can help you explore your options, forecast scenarios, and integrate retirement planning in your overall wealth management strategy. We want to help inform your decision so you can reach your goals and feel confident planning your next chapter. Contact our team to learn more about how we can help you prepare for retirement and collaborate with your team of professionals to ensure your transition is easier.

Common FAQs

What if I’ve already decided where I want to retire?

Knowing where you want to retire is a great start. Still, if you’re planning to live in a high-cost, high-tax destination, it’s essential to stress-test your plan over multiple years to help ensure you can sustain your income, identify potential risks, and proactively prepare.

Should I downsize to a smaller space when I retire?

There are various financial considerations and emotional implications to evaluate before moving or selling your home. You may consider factors such as your social connections, ongoing maintenance and costs, what you can afford, and/or if you could benefit from a low-cost basis mortgage rate, and property taxes, depending on how long you’ve lived in your home. Learn more in this blog post.

Is it smart to leave California for tax purposes but still remain a California resident? 

Taxes vary by state, making it essential to understand residency requirements before establishing roots. Living outside of California may not change your tax status, and while you may trade California’s high state income and sales taxes for lower rates in other states, relocating could also include new or higher taxes for property, retirement income, Social Security, or estate taxes. Taxes and their long-term impact are a significant factor in understanding your overall living costs.

Are there places besides California where it would be cheaper for me to retire? 

Yes, many other states offer lower costs of living and taxes. However, while expenses for housing, food, and other essentials are likely to be lower outside of California, there are likely trade-offs. From access to diverse cultures and entertainment to year-round sunshine in many areas and staying close to family, you must weigh the state’s costs versus what you value most.

While we do not offer tax advice, we are happy to collaborate with you and your tax professional to develop a comprehensive plan that integrates and optimizes all aspects of your financial life. Please contact us if you have questions about your situation, the forthcoming changes, or how to connect with a trusted CPA.

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Sources:

1. CNBC. Mike Winters. “The 10 U.S. places with the highest cost of living—No. 1 costs more than double the national average.https://www.cnbc.com/ . June 29, 2024. https://www.cnbc.com/2024/06/29/us-highest-cost-of-living.html 
2. Tax Foundation. Janelle Fritts, Katherine Loughead. “State Individual Income Tax Rates and Brackets, 2025.” taxfoundation.org. February 17, 2026. https://taxfoundation.org/data/all/state/state-income-tax-rates-2026/
3. U.S. News & World Report. “Rankings: Health Care – States with the Best Health Care.” usnews.com. https://www.usnews.com/news/best-states/rankings/health-care?sort=alpha-asc
4. CNBC. Jessica Dickler. “50% of parents financially support adult children, report finds. Here’s how much it costs them.” https://www.cnbc.com/ . March 25, 2025. https://www.cnbc.com/2025/03/25/half-of-parents-financially-support-adult-children-report-finds.html#:~:text=For%20the%20first%20time%2C%2050,year%20and%2045%25%20in%20202