8 Reasons $1 Million Will Only Last You 12 Years in Retirement in California

frankpeters / Getty Images

Commitment to Our Readers

GOBankingRates' editorial team is committed to bringing you unbiased reviews and information. We use data-driven methodologies to evaluate financial products and services - our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our products and services review methodology.

20 Years
Helping You Live Richer

Reviewed
by Experts

Trusted by
Millions of Readers

According to a Schwab Retirement Plan Services survey, the average American believes they need $1.9 million to retire without financial strain. How much you’ll actually need to retire depends heavily on your own circumstances and needs, however. Matters of lifestyle and location, in particular, can influence how much you should have before leaving the workforce behind for good.

If you live in California, chances are you’re going to need much more than $1 million — and possibly even more than $1.9 million — to retire comfortably. Here’s how much you’ll need to retire and why $1 million probably isn’t enough.

Typical Annual Costs in California: $78,864

While $1 million might have once been enough to retire on, it doesn’t go quite as far as you might think these days. Here’s how much a typical year will cost in California, according to recent GOBankingRates data:

• Housing: $22,530
• Utilities: $5,202
• Groceries: $5,387
• Transportation: $6,283
• Healthcare: $8,226
• Total (annual): $78,864

If you spend roughly the same amount in retirement as the average Californian, $1 million will last you 12 years, eight months and five days.

7 Other Reasons Why $1 Million Won’t Last in California

As for why $1 million won’t last more than about 12 1/2 years, here are the big reasons:

• High overall cost of living: The West Coast has always been expensive, but the overall cost of living in California is 145. This makes California more expensive than any other place in the country aside from Hawaii, which has an overall cost of living index of 186.2.
• Years in retirement: The average retirement age in America is around 61 years old. Given that people can often expect to live well into their 70s or 80s — and sometimes beyond — $1 million isn’t going to be enough. If anything, you’ll be set until your early 70s or so in California.
• Higher taxes: California doesn’t tax Social Security benefits, which is a major plus. Other types of retirement income, however, may be subject to taxation. The state also imposes an additional 2.5% state penalty for early distributions from IRAs, annuities and retirement plans. There’s also a high state sales tax that can cut into your savings.
• Long-term care costs: Older Americans often need some kind of long-term care, but if you haven’t factored that into your retirement savings, you could be in for some financial trouble. A recent American Association for Long-Term Care Insurance survey found that the average annual cost of a long-term care policy starts at $1,700 a year and goes up to $7,225. Policies and coverage options in California may be even higher.
• Lifestyle choices: There’s plenty to do in California. Some of this is free, like going to the beach or park, but a lot of it costs money. The total average spending of $78,864 doesn’t account for leisure, recreation, hobbies, travel or miscellaneous. So, if you plan to spend money on these things, $1 million won’t last as long.
• Inflation: The cost of living is always on the rise. Right now, inflation sits at 3.4%, but it could rise in the future. Depending on which types of accounts you’re using for your $1 million, it might — or might not — be enough to combat the effects of rising costs.
• Other costs: If you have to cover emergency expenses, home renovations, car maintenance, debts, entertainment, charitable donations or any other miscellaneous costs, that can also reduce how long $1 million lasts you in retirement.

Share This Article: