Having a comfortable retirement doesn’t necessarily mean leaving The Golden State behind.
In our California-based advising firm we often see clients who would like to move out of the state at retirement (or sooner). There are plenty of reasons to re-settle, and if your only reason is “I want to” then that is good enough for us. But the retirement of your dreams doesn’t necessarily mean you need to pack up and move. Call us biased…but we love The Golden State!
The State Tax Problem
A major concern for Californians is taxes. Our top state tax bracket is the highest in the nation. However, a retiree’s taxable income is not often in the highest bracket. The tax rates for most middle (and even upper-middle) class taxpayers are comparable to, and sometimes lower than, those in several other states.
To illustrate: in 2021 a single California taxpayer’s taxable income between $61,215 and $375,221 will be taxed at 9.3%. Compare that to a nice midwestern state like Minnesota. Their very top tax bracket is 9.85%, but it starts at taxable income over $166,041. So if your taxable income is between $166,041 and $375,221, you will pay similar state taxes whether you are in California or Minnesota.
Let’s look at a more realistic retirement income. Taxable income in retirement for an average married couple might be around $85,000. In California, their effective state tax rate for 2021 would be about 2.40%. If the couple decided to move to Arizona (a low tax state) in retirement, their effective state tax rate would be about 1.87%. That’s a difference of just $450 per year. Uprooting and moving states to save $450 in a year may not really be worth it!
It is true that state taxes are much lower in many other states. There are even states with no state income tax. But these states offset their lack of income tax with sales tax, property taxes, and other local taxes. The bottom line is: no state is going to let you put down roots for free. While California certainly is not the most taxpayer friendly state, for a large portion of residents the higher tax brackets are not going to be a factor.
Quality of Life in California
Two major considerations for quality of life are staying physically active and staying socially engaged. We know that a sedentary, perpetually isolated lifestyle is bad for your health. The mild-to-warm weather in California means your favorite activities can usually continue year-round, keeping you moving and socializing consistently throughout your life.
California has something for everyone. Do you prefer vibrant evenings out in the city or quiet mountain escapes? Yoga on the beach? Pickleball in the suburbs? Hiking in the desert? It’s all here.
Why Warren Street Loves CA
Why else does our team love California? When asked “What are some reasons a person might want to retire in California?” here is what we had to say:
- “Many job prospects for those who want to have a part-time retirement living.”
- “On the tax note, Prop 13 and Prop 19 can keep CA property taxes low.”
- “Good access to medical care and good doctors in most of CA.”
- “Diverse population and diverse cultures in CA.”
- “California is a great hub for entertainment and tourism.”
- “Home to multiple beaches, national parks, etc.”
- “CA is the largest municipal bond market by issuance.”
Every state has something great to offer. Above all, we love to see our clients happy and living their best life – before and after retirement.
Do you want to continue your California dream after you retire? Or do you want to try somewhere new? Whatever your goals, Warren Street is here to help you make them reality.
Kirsten C. Cadden, CFP®
Associate Advisor, Warren Street Wealth Advisors
Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor
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