California’s Retirement Costs Are Higher Than You Think—Here’s What To Know

Retiring in California might bring images of sun-drenched beaches, majestic mountains and a vibrant lifestyle. The third-largest state offers diverse landscapes and weather, providing potential retirement spots for various preferences, with excellent outdoor activities and healthcare services. However, it’s essential to consider the high cost of living, state income taxes and other factors when planning your retirement.

Here’s an overview of key factors to consider when planning your retirement in California to help you make a more informed decision.

Living and Housing Costs

One of the most significant considerations when choosing where to retire is the cost of living, and in California, housing is the primary driver of these costs.

David Rae, a Los Angeles and Palm Springs-based financial planner and President of DRM Wealth Management, suggests researching what your housing budget will get you, whether you rent or buy. 

“When planning to move to California in retirement, be aware that your housing dollars won’t likely go as far here as where you are moving from,” he says. 

Regional Variation in Housing Costs 

Southern California 
This region has some of the highest housing prices in the country. Areas like Los Angeles and San Diego often average home prices nearing or even exceeding $1 million. More inland areas and towns further from big cities will have more affordable options. The Legislative Analyst’s Office (LAO) highlights that California home prices exceed the national average.

Northern California 
The San Francisco Bay Area is known for exceptionally high housing costs, primarily driven by the tech industry. While Sacramento is more affordable within Northern California, it still has higher prices than many other areas.

More Affordable Areas
Retirees looking for more budget-friendly options might consider areas further inland, such as the Central Valley (Fresno) or the Inland Empire (Riverside, San Bernardino). However, these still exceed the national average.

“While cities like San Diego and San Francisco have high living costs, California is not entirely unaffordable,” says Michelle Perry Higgins, CFT and Principal and Financial Planner of California Financial Advisors. 

She adds that there are also attractive 55+ communities that offer affordable housing with social and recreational perks. 

Comparison to the National Average 

Data from the Bureau of Economic Analysis (BEA) and the Bureau of Labor Statistics (BLS) consistently show that California’s cost of living, including housing, is higher than the national average.

According to RentCafe’s Cost of Living in California 2025 report, it is 38% higher than the national average, with housing costs being 97% higher. The LAO also found that mid-tier home prices in California are more than double those in the rest of the U.S.

Rent vs Home Ownership

When deciding between renting and owning, weigh stability and potential equity against flexibility and lower upfront costs. The initial cost of purchasing a property and ongoing expenses like mortgage payments, property taxes, and insurance can be pricey.

Higgins suggests considering your long-term goals and lifestyle preferences when deciding between renting and owning in retirement in California. Ask yourself what your priorities are at this stage of life.

“Depending on your budget and long-term plans, renting may be more financially viable than buying,” Higgins says. “If homeownership makes sense for you, downsizing can be a smart choice, as it reduces maintenance, utility, and potentially property tax costs.” 

State Taxes

Understanding the state tax system and its implications for retirement income is essential when considering retiring in California or building a retirement plan in any state.

Rae says “California has [one of the] highest marginal tax rates in the nation. However, many people will find that they pay fewer state taxes when living in California than in other states.” He also advises working with a CFP to compare how your retirement income would be taxed in your current state versus California, as the results may pleasantly surprise you. 

Higgins agrees, adding, “Working with a financial advisor and accountant can help retirees optimize withdrawals, leverage tax deductions, and create a tax-efficient budget to extend the longevity of their retirement savings.”

State Income Tax, Social Security Benefits, and Pensions 

California has a progressive income tax system, with rates considered among the highest in the nation. However, a significant benefit for retirees is that Social Security benefits are not subject to state income tax.

“By strategically managing withdrawals and income streams, retirees may keep their provisional income low enough to receive up to 100% of their Social Security benefits tax-free at the federal level,” Higgins says. As for pension income, it is subject to California state income tax.

Property Tax Protections for Homeowners Aged 55 or Older

California offers property tax relief for those aged 55 and older through Proposition 60 and Proposition 90. These propositions allow for transferring a property tax base under certain conditions when selling and purchasing a new primary residence within or outside the county, according to the California State Board of Equalization. These propositions can save significant property tax for retirees who downsize or move within the state.

Tax Implications of Selling Property 

When selling your home, you may be subject to capital gains tax on any profit from the sale. However, federal and California tax laws offer substantial exclusions for the sale of your primary residence.

For single individuals, the federal exclusion can be up to $250,000, and for married couples filing jointly, it can be up to $500,000, provided ownership and residency requirements are met.

California generally follows these federal guidelines. If the gain exceeds the exclusion, it is considered taxable. For many retirees selling their primary home, the substantial federal and state exclusions can significantly reduce or even eliminate capital gains tax liability.

Climate and Weather 

Considering the climate and weather is essential when choosing a retirement location in California, as they impact lifestyle and costs.

“Now that you are in California, close to the beaches, mountains, and outdoor activities, can you reduce your entertainment, travel, or country club membership?” Higgins suggests.

Mediterranean Climate (Coastal Regions)

Much of the coastal area, stretching from Southern California to parts of Northern California, enjoys a Mediterranean climate with warm, dry summers and mild, wet winters.

This consistent weather is often a significant draw for retirees seeking an active outdoor lifestyle. Since this encourages a more active lifestyle, retirees could benefit indirectly from better health and lower healthcare expenses. The weather can also lead to lower heating costs but often comes with higher living expenses.

Desert Regions 

Eastern and southeastern California experience desert-like climates with hot summers, mild winters, and unique landscapes. Some things to consider about this climate are water conservation and the impact of extreme temperatures on daily life, which can impact air conditioning costs. Housing in some desert areas might be more affordable than in the prime coastal regions, which could be attractive for retirees on a tighter budget.

Cooler Climate (Higher Altitudes)

The Sierra Nevada mountains and other higher-elevation areas enjoy a cooler climate, with significant snowfall during the winter months. There are opportunities for winter sports, but consideration should be given to heating costs and potential snow-related maintenance.

Risks of Natural Hazards and Impact on Insurance Costs

Living in California means awareness of natural hazards like wildfires, droughts, and earthquakes, which can affect insurance costs and financial planning. 

“Even before the recent wildfires, getting homeowners insurance has been challenging in many parts of California,” Rae says. 

Areas with higher wildfire risk often face higher premiums and may struggle to find coverage at all, according to ABC. Homeowners are also advised to have earthquake insurance, which adds to the total cost of home ownership. Prolonged droughts can also affect property values and the overall cost of living. 

“By using risk maps to identify safer areas and obtaining adequate insurance coverage, retirees can effectively reduce risks and gain peace of mind,” Higgins says. 

Outdoor Activities and Lifestyle Benefits 

California’s climate supports year-round outdoor activities like hiking and swimming, contributing to a healthy lifestyle and potentially reducing entertainment expenses. The diverse landscapes offer a variety of recreational options. Exposure to nature and time outdoors for older adults has been linked to a higher quality of life and less risk of depression.

Healthcare and Senior Services 

California offers a robust healthcare system, particularly in its major cities like Los Angeles, San Francisco, and San Diego, home to world-renowned hospitals and medical centers, including UCLA Medical Center, UCSF Medical Center, and UC San Diego Health. Healthcare costs are something to consider if you’re retiring on a budget.

Healthcare Access in Major Cities vs. Rural Areas

While large cities offer easy access to specialists and cutting-edge medical facilities, rural areas may face limited healthcare options. The California Public Policy Institute (PPIC) has reported that some rural areas struggle with healthcare access due to fewer providers and hospital closures.

Still, the availability of telehealth services in the state has been expanding, meaning more access for folks across the state.

California is known for its high-quality healthcare and role as a medical innovation hub. The state has many medical research institutions and strongly emphasizes healthcare advancements. For example, the University of California has over 800 research centers and laboratories across ten campuses.

Availability of Senior Services

There’s a variety of senior services, from home care to long-term care, available in California. Still, Rae says that planning for long-term care is challenging no matter where you live. 

“The costs are likely to be well above the national average here in California,” he says. “When it comes to care while aging, you should consider where your friends and family live who may be able to offer a little bit of oversight as you get closer to needing long-term care.” 

Medicare Advantage Plans

Medi-Cal is California’s Medicaid program. It generally provides free or low-cost health coverage to eligible low-income individuals and families, including eligible seniors. A recent survey of Medi-Cal members by the California Healthcare Foundation (CHCF) found that 90% of respondents rate Medi-Cal as a good or excellent program.

According to Rae, the majority of people in nursing homes rely on Medicaid to pay for long-term care, and the California government has been more proactive than many other states in fighting to keep and expand Medicaid benefits for its citizens. 

The California Department of Aging has many great resources on senior services and programs across the state. “Many retirees qualify for Medicare Advantage plans, which offer comprehensive and often affordable coverage options,” Higgins says. “With careful planning and the right Medicare selection, retirees can access quality healthcare while managing costs effectively.”

The Bottom Line 

California offers retirees an attractive mix of great weather, a wealth of healthcare options, and a lively, active lifestyle. However, the high cost of living and state income taxes are significant factors to consider.

Higgins and Rae recommend meeting with financial advisors to better understand how moving to California might impact your retirement plan and to help optimize tax strategies.