Retirement Planning in California

Should you stay, move within California, or leave?

About 15.7 percent of Californians are 65 or older, and many of them sit on a valuable house. According to the U.S. Census Bureau, 2020 to 2024 American Community Survey, the median home is worth about $734,700. That equity is both the main retirement asset for many households and the reason the staying-or-going question is hard.

A retirement advisor sets out three paths and prices each one. Staying keeps the low Proposition 13 tax base, your doctors and your family, but leaves you with California’s income tax on withdrawals and its living costs. Moving within the state under Proposition 19 can cut the purchase price by downsizing while keeping some of the tax advantage. Leaving can lower income tax and housing costs, at the price of distance from family and the loss of the tax base you built up.

No path wins by default. The advisor builds a month-by-month budget for each and tests how long your savings last.

How California taxes retirement income

Social Security benefits are exempt from California income tax. Almost everything else is taxed as ordinary income: pensions, annuity payments, traditional IRA and 401(k) withdrawals and the interest, dividends and gains from a taxable account. The state has no special deduction for retirement income. Military retired pay is taxed too, with a limited, income-tested exclusion that lawmakers have revisited, so check with the Franchise Tax Board before relying on it.

Withdrawal order therefore carries real weight. Drawing from a taxable account, a traditional IRA and a Roth in the wrong order can push income into higher brackets for no reason. Converting some traditional money to Roth in a low-income year can lower lifetime tax, though the conversion itself is taxed by California. Our tax planning guide explains the tradeoffs.

Leaving the state and the income tax

Federal law bars a state from taxing the retirement plan and IRA distributions of someone who no longer lives there. People planning to move often wait to take large distributions, or do a Roth conversion, until after the move is complete and well documented. The Franchise Tax Board looks hard at residency claims, so the change has to be real: where you live, where your driver’s license and voter registration are, and how many days you spend in California.

Selling a home carries a separate question. California residents can exclude part of a home sale gain under the federal rules, but a sale in the year you move can produce a California tax bill, so the sequence matters.

Proposition 13 and 19 for retirees

Under Proposition 13 your taxable value is the price you paid, rising no more than 2 percent a year. A retiree who bought long ago can pay a small fraction of what a neighbor pays. Under Proposition 19, owners 55 or older, severely disabled owners and victims of a wildfire or other disaster can transfer that base to a replacement home anywhere in California, up to three times, with an adjustment if the new home costs more. File with the county assessor within the required window.

The state also runs a Property Tax Postponement program for homeowners 62 and older, blind or disabled who meet income and equity limits. Taxes are postponed, not forgiven, and become a lien that is repaid when the home is sold. Income limits and rules change, so check current terms with the State Controller.

The parent-child exclusion is narrower than it used to be. A home passes to a child at the old tax base only if the child makes it their primary residence, and only up to a limit, so retirees with rentals or second homes should plan for reassessment when heirs inherit.

Public pensions and Social Security

Many Californians retire from public service. CalPERS covers state workers and many city, county and school district employees, and CalSTRS covers public school and community college teachers. Los Angeles, San Diego, San Francisco and other places run their own systems for some workers, and the University of California has a separate plan. Many teachers and some local employees did not pay into Social Security through their public jobs.

The Social Security Fairness Act, signed in January 2025, repealed two rules that had reduced Social Security checks for people with these pensions. Members, and spouses and survivors who relied on a reduced benefit, should ask the Social Security Administration for a new estimate. Pension choices, such as a joint and survivor option, are usually permanent, so compare them with life insurance before you decide. Our retirement planning guide covers the general sequence.

Health care and long-term care

Medicare begins at 65. Earlier retirement means coverage through COBRA, a retiree plan or the Covered California marketplace, where premium subsidies depend on income, so managing taxable income in the early years can lower the premium. After 65 the choice is between traditional Medicare with a supplement and a Medicare Advantage plan, and the right option depends on your county and your doctors.

Long-term care is the largest unknown. Costs for home care and facilities are high in California. Medi-Cal helps people with limited assets, and the state looks at what you own and what you transferred in the past, so gifting assets to children is not a simple fix. An advisor can compare a long-term care policy, a life policy with a care benefit and self-funding.

Risks that live in a California budget

Wildfire and earthquake risk change the math of staying in a house for decades. Insurers have restricted coverage in fire-prone areas, and the state’s insurer of last resort charges more for less. Quake coverage is separate. Keep a reserve for deductibles and for temporary housing, and review coverage every year. Keeping that reserve also means you are not forced to sell investments after a market drop.

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Turning savings into a monthly paycheck

Most California retirees need a plan that answers a simple question: how much can I spend each month without running out? The advisor starts with the income you can count on, such as Social Security and any pension, and measures the gap against your spending. The gap is what your portfolio has to cover.

Many advisors divide the money by time. Cash and short-term bonds cover the next few years of withdrawals, so a market drop does not force a sale. Mid-term bonds and balanced funds cover the years after that. Stocks, held for growth, cover the later decades and inflation. The exact mix depends on how much steady income you already have. A retiree with a large CalPERS pension can often hold more stocks than one who relies on savings alone.

Taxes shape the order of withdrawals. In a year when income is low, the plan may fill the lower brackets with IRA withdrawals or Roth conversions. In a year with a large gain from selling a home, it may lean on cash instead. Required minimum distributions begin later in life and can push income up, which is another reason to use the early years deliberately.

Estate steps retirees should not skip

California has no estate or inheritance tax, but probate can be slow and costly in a state with high home values, so many retirees hold their home and accounts in a revocable living trust. A trust only helps if the house and accounts are actually titled in it. Keep beneficiary forms on IRAs and life policies current, name someone to hold powers of attorney for finances and health care, and review everything after a move, a death or a change in family. Our estate planning guide explains each document.

Community property rules deserve a look as well. When the first spouse dies, community assets can receive a new tax basis, which can erase gains on a long-held home or stock, and that affects whether a surviving spouse should sell soon after. Families who hold a home they hope to pass on should also ask an attorney how Proposition 19 will treat it when the children inherit.

Paying for retirement advice

Ask for every cost in writing, including fund expenses and surrender charges.

Hiring a retirement advisor in California

1. Ask how the advisor turns savings and pensions into monthly income.
2. Ask about experience with CalPERS, CalSTRS, equity compensation or a move out of state.
3. Check the advisor on the SEC adviser database, FINRA BrokerCheck and the state’s Department of Financial Protection and Innovation.
4. Get the full yearly cost in writing, and ask about any annuity fees.
5. Ask whether they compare Social Security claiming ages for both spouses.
6. Interview two or three, and be wary of anyone who leads with a product.

Frequently asked questions