Retirement in California: Why It Costs $1.1 Million (Plus Social Security)

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When you reach retirement age in California, whether you are looking to live in a major city like San Francisco or Los Angeles or hoping for a smaller coastal town, your retirement plan has to include quite a savings cushion. The more you save, the better, even if you’re counting on a fair bit of compensation from your retirement income. Any financial advisor will tell you that California is one of the loftier goals when saving for your retirement destination.

Your retirement savings plan is essential to your financial future, so knowing how much you need to store away is helpful when budgeting out your paycheck. GOBankingRates recently conducted a study to determine the minimum savings you need in each state to retire, plus Social Security retirement benefits.

The general cost-of-living statistics were based on factors including everything from utility bills to healthcare. Here are some key takeaways:

• The national average Social Security income is $21,567. It’s always good to compare how far your benefits will get you in California as this state can come with inflated property tax rates, health insurance, cost of living and more. 
• The minimum savings needed to retire in California for 20 years: $1,145,940
• The minimum savings needed to retire in California for 25 years: $1,432,425
• The minimum savings needed to retire in California for 30 years: $1,720,630

Here are four reasons why you need at least $1.1 million saved, plus your Social Security benefits, if you’re planning to retire in the state of California.

4 Reasons Social Security and $1.1 Million Only Buys You 20 Years of California Retirement

Whether you are planning on reaching the full retirement age of 65 or hoping for early retirement, living in California when you finish working requires serious savings. Let’s dig into some reasons why.

1. Affording Housing Is Simply California Dreaming

• Average Annual Housing Cost: $22,530.48

California housing costs are sky-high. Whether you’re renting or looking to buy, real estate comes with a premium price tag. GOBankingRates found that it’ll cost you nearly $22,530 a year.

2. Healthcare, Food and Utility Bills Don’t Have a Sunny Forecast

• Average Annual Cost of Healthcare: $8,226.14
• Average Annual Cost of Utilities: $5,201.81
• Average Annual Cost of Groceries: $5,387.03

Food costs are high, air conditioning is necessary and you’re nothing without your health, so affording your healthcare, utilities and grocery bills is a necessity when figuring out your monthly budget. Even if you are eligible for Medicare you can still expect to pay about $8,226 a year in healthcare. The cost of utilities also tops out at $5,202 annually and your grocery bills average a total of about $5,387 a year.

3. Automobile Costs May Put a Ding in Your Automated Savings

• Average Annual Cost of Transportation: $6,282.55

You might imagine your California retirement like a scene from a movie, with you top-down driving along Route 66. However, even quick commutes can add up when you factor in rising gas prices and unexpected car maintenance costs. GOBankingRates estimates that the average annual transportation costs are about $6,283 in California.

4. It Costs a Lot to Live Here — Before and After Social Security

• Average Annual Total Cost of Living: $78,863.75
• Average Annual Total Cost of Living After Social Security: $57,296.99
• Minimum Needed for 20 Years of Retirement: $1,145,940
• Minimum Needed for 25 Years of Retirement: $1,432,425
• Minimum Needed for 30 Years of Retirement: $1,720,630

There are so many above-average costs in California that when you add it all up, Social Security may not be as much of a cushion as you hoped it would be in retirement. Even outside of income tax, having an average annual cost of living of $78,684 means that Social Security only knocks it down to about $57,297, which for many people may be more than they make in their salary. 

The bottom line is that retiring there isn’t necessarily California dreaming, but it takes substantial financial investing, planning and saving to do. If you retire at age 65, $1.1 million will only last until you’re 85, and $1.7 million until you’re 95. As you want to have a long and stress-free life in retirement, the more you save now the less you’ll have to do later.

Methodology: To find out exactly how much you need to retire in your state, GOBankingRates found the annual cost of expenditures for a retired person in each state by multiplying the 65-year and older expenditures from the Bureau of Labor Statistics 2022 Consumer Expenditure Survey by the cost-of-living index for each state from the Missouri Economic Research and Information Center’s Q3 2023 cost-of-living series. To find how much money a retired person would need to save, we divided each state’s annual expenditures, minus the annual Social Security income as sourced from the Social Security Administration’s Monthly Statistical Snapshot, March 2022, by 0.0333%, 0.04%, and 0.05% assuming 20, 25 and 30 years of retirement respectively. All data was collected and is current as of January 8, 2024.

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