11 Biggest Money Mistakes When Retiring in California
Written by
Jordan Rosenfeld
Edited by
Amber Barkley
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It’s easy to see why people choose the Golden State for retirement — California is beautiful, temperate and full of excellent sights, amenities and a variety of neighborhoods with better weather than many parts of the country.
However, retiring in California is not without its problems. People pay more for the privilege of living in this coveted state.
GOBankingRates spoke to financial experts who explained the 11 biggest money mistakes you can make when retiring here.
Failing to Properly Establish a Domicile
California is aggressive about auditing domiciles — your place of residence — to prevent tax evasion, according to Alec Kellzi, CPA at IRS Extension Online.
“Retirees need to fully sever out-of-state ties and follow all legal requirements, like transferring driver’s licenses, voter registration, bank accounts and doctors, to claim California residency,” he explained.
Rushing this process can lead to ongoing tax bills from previous states.
Not Protecting Assets From Medicaid Spend-down Rules
California has strict Medicaid eligibility rules that require spending down assets before coverage begins, Kellzi shared.
“Retirees should utilize options like special needs trusts and strategic gifting to heirs to shield assets from Medicaid claws back if long-term care is needed,” he said.
Proper planning preserves the estate for your heirs, he added.
Purchasing an Unsuitable Home
The ideal retirement home varies based on lifestyle and locality within California, and Kellzi recommended really doing your research, both online and in person, before settling.
“Retirees should avoid buying homes needing significant maintenance or homes isolated from activities and healthcare access,” he said. “Thoroughly evaluating home features reduces relocation hassles later.”
Overlooking State and Local Tax Relief Programs
It’s wise to consider that the state of California and its local municipalities offer property tax breaks, income tax offsets and other tax relief programs for qualifying seniors, Kellzi explained.
“Doing thorough research instead of assuming ineligibility helps maximize savings. The tax rules contain hidden savings opportunities,” he said.
Ignoring the High Cost of Living
Because retiring in California is coveted, it comes with a higher price tag, said Erica Brenning, owner of Cash Buyers.
“Housing costs, from cozy apartments to spacious homes, can be on the steeper side. Beyond that, your everyday needs, like groceries, healthcare and getting around, can stretch your budget,” she said.
She recommended exploring more “budget-friendly neighborhoods” or considering downsizing, so you don’t end up constantly stretched beyond your means.
Steep Property Taxes
California’s scenic beauty is offset by the high property taxes, Brenning said, which you need to factor into your budget.
“The overall property tax bill can feel like a rain cloud on your sunny retirement,” she said. “The state calculates taxes based on the value of your home, and in California, that value can be quite high.”
She recommended researching areas with lower tax rates or potential exemptions.
Ignoring State Tax Implications
California has one of the highest state income tax rates in the U.S., according to Sal Cocurullo, financial expert and founder of Revenue Land.
“This can significantly impact your retirement income,” he explained, “particularly if you’re drawing from traditional IRAs or 401(k)s, which are taxed as regular income.”
Real Estate Missteps
The California real estate market is highly variable, with significant differences in property values and living costs between regions, Cocurullo pointed out. “Retirees should be cautious about where to buy a home, considering factors like property taxes, insurance costs and proximity to essential services.”
Failing To Plan for Inflation
Inflation is a factor no matter where you live, but especially in a state like California — where many costs are more expensive than the rest of the U.S. — “inflation can erode the purchasing power of your retirement savings,” Cocurullo explained.
“It’s essential to have an investment strategy that accounts for inflation, especially in a state where the cost of living tends to rise steadily,” he said.
Not Planning to Downsize
If you live in a big house in a state with a lower cost of living, you’ll probably need to lower your expectations if you move to California, according to Carter Seuthe, CEO of Credit Summit.
“Even smaller and less populated areas of California tend to have high real estate prices, so your money might not stretch as far as it will in other areas — especially on a fixed income,” Seuthe said. “So, you might need to adjust expectations and look for smaller properties to retire in if you’re moving to California for retirement, or consider downsizing a larger property for retirement if you live there already.”
Forgetting About Traffic and Transportation
“California’s renowned beauty is sometimes accompanied by notorious traffic congestion, particularly in metropolitan areas,” said Jonathan Rosenfeld, founder and managing attorney at Rosenfeld Injury Lawyers. “Retirees should factor in transportation costs, especially if they plan to travel frequently.”
Choosing a location with access to public transportation or in proximity to major highways can significantly impact the ease of accessing essential services and amenities, he suggested.
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