Retirement Planning in San Diego

Retirement in San Diego starts with a decision about the house

For many San Diegans, the biggest retirement choice is not how to invest. It is where to live. The weather, family, doctors and friends keep people here, while rising costs push others toward Arizona, Nevada, Idaho or Texas. A good plan treats both options as real and compares them in dollars.

According to the U.S. Census Bureau, 2020 to 2024 American Community Survey, 14.6 percent of San Diego residents are 65 or older, the median home value is $906,700 and 47.3 percent of households own their home. Anyone who bought before the last two decades of price gains may have large equity and a low property tax bill. That combination is both a strength and a trap.

Stay or go: running the numbers

Consider Frank and Linda, both 66, who own a three-bedroom home in Clairemont bought in 1989. It is worth about $1.1 million with a small mortgage left. Selling would net a large amount after costs, and the federal exclusion on home sale gains can shelter up to $500,000 of gain for a married couple who meet the residency tests. Past that, the gain is taxed, and California taxes it as ordinary income.

The planner builds two columns. In the first, they stay: property taxes stay low under Prop 13, but insurance, utilities, repairs and the stairs do not get cheaper. In the second, they sell and buy in another state or rent in a senior community. Housing costs fall, but they lose a nearby daughter, change doctors and still owe California tax on the sale. The better answer is rarely obvious until the figures are on paper. Our retirement planning guide covers how to estimate what you need before you run this kind of comparison.

What leaving California does and does not change

Moving to a state with no income tax can lower a tax bill, but California is careful about residency. The Franchise Tax Board looks at where you spend time, where you keep a home, where family and doctors are, and where you vote and hold a license. Keeping a San Diego house and visiting often can weaken a claim that you left.

California also taxes income from sources inside the state even if you live elsewhere, including rents from California property and gains on its real estate. Retirement income from a former California employer is generally protected from taxation by the state you left, under federal law, but confirm details. A move out of state calls for a tax professional’s help before the moving truck arrives.

Taxes in retirement

Social Security is not taxed by California, though up to 85 percent can be taxed federally. Pension payments, annuities, traditional IRA and 401(k) withdrawals and investment income are all taxed as ordinary income. Roth withdrawals are tax free if the rules are met.

This makes Roth conversions worth modeling. Between retirement and the age when required distributions start, income is often low, and converting part of a traditional IRA each year can fill lower brackets. California taxes the conversion, so a retiree who plans to move to a no-tax state may prefer to convert after leaving. The timing question is worth an hour with a planner. The tax planning basics explain brackets and conversions.

Military retirees in the Navy town

San Diego is home to a very large share of the nation’s military retirees. Many retired from the Navy or Marine Corps and came back for the climate, the commissary and the base hospital. The planning topics are specific:

• Tricare For Life pays after Medicare for retirees 65 and older, but Medicare Part B must be kept. Missing the enrollment window can create a permanent late penalty.
• Survivor Benefit Plan costs a share of the pension and pays a spouse after death. Compare it with private life insurance.
• Concurrent receipt allows many retirees to collect both retired pay and VA disability compensation, which is tax free federally and in California.
• Thrift Savings Plan balances can stay in the plan or move to an IRA. The plan’s low cost funds are a reason many keep them, and its withdrawal options are narrower than an IRA’s.
• California tax on retired pay has been limited by an exclusion with income caps, and lawmakers have kept revisiting it.

The VA also provides a disability rating that affects other benefits. A retiree who never filed a claim for hearing loss or a bad knee may be leaving money behind. Accredited veterans service organizations help with claims at no charge.

Public pensions: City, County, UC and schools

The City of San Diego has its own retirement system, the County has the San Diego County Employees Retirement Association, UC San Diego employees belong to the University of California Retirement Plan, and teachers belong to CalSTRS. Many other public workers belong to CalPERS. Each system has its own formula, retirement ages, survivor options and rules about returning to work.

Voters changed the City’s pension approach for newly hired workers in 2012, so a colleague’s benefit may look nothing like yours. Ask your system for a current estimate in writing, and review the survivor choice with care, because many pension elections cannot be reversed. Retirees from these systems often do not receive Social Security from the same job, and the 2025 law that repealed the Windfall Elimination Provision and the Government Pension Offset changed benefits for many. Request a fresh estimate from the Social Security Administration.

Medicare and the supplement choice

Medicare starts at 65 for most people. Original Medicare can be paired with a Medigap policy, or you can choose a Medicare Advantage plan, which uses a network. San Diego County has many plans, and the choice depends on which hospitals and specialists you want. Scripps, Sharp, UC San Diego Health and Kaiser serve different networks, so check your doctors before picking a plan.

High income retirees pay an extra premium for Part B and Part D, called IRMAA, based on income from two years earlier. A Roth conversion or a home sale can trigger it, so model those moves before you make them.

Long-term care in coastal California

Care costs here run above national averages. Assisted living and memory care in San Diego County can cost many thousands of dollars a month, and Medicare does not pay for long-term custodial care. Options include saving and self-insuring, buying a long-term care or hybrid life policy while healthy, or relying on Medi-Cal, which has strict asset rules. The life insurance guide explains hybrid policies. A planner will want to know your family history and who could serve as a caregiver.

Home features also count. An accessory dwelling unit in the back yard can house a caregiver or a family member, so a retiree might age in place for longer.

Retiring in Baja California

A number of retirees choose Rosarito, Ensenada or Tijuana for lower living costs. The planning points are different from a domestic move. Medicare does not generally cover care outside the United States, and Tricare For Life has overseas limits that should be confirmed. Foreign nationals cannot hold land directly near the coast and use a bank trust. Social Security can be paid abroad, and the United States and Mexico have an agreement on benefits for people who worked in both countries. Wills may be needed in both countries. Many retirees keep a US address and returning to San Diego for care is common.

How much will you need

A common starting point is to replace 70 to 80 percent of pre-retirement income, but San Diego housing can push the real number up or down. Retirees who own their home outright may need much less. Renters need more. Build the budget in parts: housing, healthcare, food, transportation, travel, gifts and taxes.

Withdrawal order and the first five years

The first years of retirement matter most because a market drop early on does more harm. A planner may suggest holding a cash reserve for one to two years of spending so you do not sell stocks at a low. Withdrawals commonly follow an order, taxable accounts first, then traditional, then Roth, but the right order depends on brackets, Medicare premiums and your estate goals.

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Estate basics for retirees

California has no state estate tax, so most planning focuses on avoiding probate, naming beneficiaries and keeping the home’s tax treatment in mind under Prop 19. Keep beneficiary forms current, since they override a will. A revocable trust, a power of attorney and a health care directive form a basic package. See our estate planning guide to get started.

What to do five years before retirement

1. Request benefit estimates from Social Security and any pension system.
2. Count your yearly spending and subtract pension and Social Security income.
3. Pay down debt that will carry into retirement.
4. Decide whether you will stay in your home.
5. Meet an advisor to test your plan against a market decline.

Choosing a retirement advisor

Look for experience with retirees as well as with investors. Ask about experience with pensions, Medicare and tax planning. Prefer a fiduciary who discloses fees in writing. Interview two or three.

Frequently asked questions