The Hidden Costs of Retiring in California or Moving Out of State

Many people dream of retiring in California but overlook the associated costs, such as the high cost of living and taxes. Pre-retirees may consider relocating to a different state to help manage expenses when planning for retirement. While California is one of the most expensive states in the country, relocating can also incur hidden costs. Let’s review the top “hidden” costs of retiring in the Golden State or moving elsewhere.

The Tax Costs of Retiring in California

Whether you’ve been a lifelong resident or have always wanted to settle in California for retirement, there are costs to consider that are integral to retirement planning.

• 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 2025¹. 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. Social Security, however, 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.
  • Estate and Inheritance 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.
• 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.

Cost of Living in California

California has one of the highest living costs in the country², behind only Massachusetts and Hawaii. Retirees should understand how their 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:

• 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 treatment³.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 month⁴, which can quickly deplete savings if not budgeted. Providing support in a high-cost state, such as California, is significantly more expensive. 

The Hidden Costs of Moving Out of California 

There are pros and cons when determining whether relocating to another state for retirement is more financially viable. While California is one of the highest-cost and taxed states in the country, there are still financial and non-financial tradeoffs to consider, such as:

• Taxes: Taxes vary by state, making it essential to understand the requirements and complexities before establishing roots. 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.
• Cost of Living and Quality of Living: While expenses for housing, food, and other essentials are likely to be lower out of state, similar to taxes, there are also likely tradeoffs. From access to diverse cultures and entertainment to year-round sunshine in many areas, you must weigh the state’s costs versus what you value most.
• Healthcare: Consider what coverage and quality of care you prefer and require, as well as the options available in a new state. You may need to budget for new out-of-pocket expenses, such as specialty care or services from providers outside of your network.
• Moving Costs: Relocating can be costly, averaging thousands of dollars⁵ for long-distance moving services, new home furnishings, renovations, and other expenses.
• Emotional Costs: Besides being expensive, moving out of state can also have high emotional costs. You should weigh the stress and challenges that come with moving and the emotional costs of potentially leaving behind family, your community, and the luxuries you’ve come to expect. Still, consider if staying in California will equally add undue stress or financial strain.

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

Choosing to retire in California or move out of state for reduced costs or to be closer to family is a highly personal decision that accounts for more than just financial costs. 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. 

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.

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Sources:

1. Tax Foundation. Andrey Yushkov, Katherine Loughead. “State Individual Income Tax Rates and Brackets, 2025.” taxfoundation.org. February 18, 2025. https://taxfoundation.org/data/all/state/state-income-tax-rates/
2. CNBC. Mike Winters. “The 10 U.S. places with the highest cost of living—No. 1 costs more than double the national average. cnbc.com. June 29, 2024. https://www.cnbc.com/2024/06/29/us-highest-cost-of-living.html 
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.” 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
5. Home Bay. Jaime Dunaway-Seale. “2024 Data: Half of Americans Are Surprised by How Much It Costs to Move.” homebay.com. February 26, 2024. https://homebay.com/moving-trends-2024/