Costly Retirement Destination in Sunny California: Key Points You Need to Consider
Rewritten Article:
San Diego, California grants a desirable retirement vibe but boasts a hefty price tag, making it one of the costliest retirement spots in the USA. This fact is underscored by a recent report from Travel + Leisure and Investopedia.
We scrutinize San Diego's property rates, state and local taxes, and overall expenses, all while considering the factors that encapsulate the city's allure despite its steep price.
Quick Insights:
- San Diego excels as a retirement destination due to its appealing climate, recreational activities, and access to healthcare.
- It's a pricey city to retire in, mainly due to soaring housing costs and taxes.
- Income sources for retirees can hugely impact taxes, with California treating pension benefits and retirement account withdrawals as taxable income.
Understanding the Financial Burden of Retiring in San Diego
Overall Expenses
San Diego isn't a budget-friendly city. Payscale estimates that living expenses there are 44% higher compared to the national average. This is primarily due to increased housing costs (115% higher), transportation tariffs (35% higher), utility bills (20% higher), and food expenses (14% higher)1.
According to the Economic Policy Institute's Family Budget Calculator, a household comprising two adults and no children in San Diego County would typically spend around $86,243 annually2. This figure exceeds even other favored retirement hotspots, with Beaufort County, South Carolina (Hilton Head Island) spending $74,229, and Maricopa County, Arizona (Phoenix and Scottsdale) shelling out $68,5252.
Property Prices
The high cost of retiring in San Diego initiates with the purchase price: home prices. According to Census Bureau data, the median home price in San Diego lately stood at $791,600. This figure exceeds the national median home price of $403,700, as of May 20253.
Realtor.com searches reveal numerous homes asking a million dollars and more, with many listings having $2 million and $3 million asking prices5. Coastal properties are particularly sought-after and, given the finite coastline, are often in short supply.
Local Taxes
California is renowned for its high taxes, and San Diego is no exception. While not distinctly retiree-centric, household taxation expenses averaging $1,055 monthly are estimated by the Economic Policy Institute's Family Budget Calculator for a household consisting of two adults and no children in San Diego County2. These taxes arrive in various forms.
Sales taxes:
California has the highest state sales tax in the U.S., at 7.25%, as per the Tax Foundation7. San Diego County adds another 0.5%, making a combined total of 7.75%8. Rolling back this figure somewhat, California exempts many likely retiree shopping items, including prescription medications and most food products, except for heated ready-to-eat foods.
Income taxes:
California boasts a progressive income tax, with marginal tax rates ranging from 1% to 12.3%. For instance, a married couple whose income was between $80,490 and $111,732 would face a top tax rate of 6%.
Note: Unlike many states, California classifies pension benefits and draws from IRAs and comparable retirement accounts as taxable income11. On the positive side, it does not impose taxes on Social Security benefits12.
Property taxes:
California's property tax rates are relatively low, partly due to regulations imposed by the passage of Proposition 13 in 1978. According to the Tax Foundation, residents pay an average effective rate of 0.68%. However, the high local housing values can still translate into substantial expenses. In 2022, San Diegans paid a median property tax of $5,21413.
Estate taxes:
Also advantageous, California neither imposes an estate tax nor an inheritance tax, which may be a concern for affluent retirees14.
Health Care Costs
San Diego boasts an abundance of top-notch healthcare facilities. For example, the Medicare.gov website lists 18 hospitals within a 25-mile radius, with many earning coveted four- or five-star quality ratings.
Healthcare costs in San Diego are generally in line with or even lower than those in other parts of the country, though prices specific to retirees were not mentioned in the report. The U.S. Bureau of Labor Statistics found that, in 2022-2023, San Diegans had average health care expenses of $5,514 yearly, compared to a national average of $6,04216. In Denver, for instance, the comparable figure was $7,118, and in Phoenix, $7,550.
What Makes San Diego So Costly?
Desirable Coastal Location
San Diego, the southernmost major city on California's Pacific coast, offers pleasant weather year-round due to the tempering impacts of the Pacific Ocean. The 70 miles of coastline are dotted with numerous public beaches for swimming, surfing, or simple relaxation17.
For retirees eager for adventure, San Diego also features an international airport and two downtown cruise ship terminals serving ten major cruise lines18. The nearby Mexican border city of Tijuana is roughly a 30-minute car ride away.
Strong Local Economy
San Diego boasts a robust, well-diversified economy with key industries including aerospace, defense, life sciences, manufacturing, and tourism. The county is also home to over two dozen colleges and universities20.
These employers draw a well-educated workforce with matching salaries, partially accounting for the area's higher prices21.
Limited Housing Supply
Real estate listings in San Diego are in high demand, primarily driven by full-time residents and second-home buyers, including retirees. Another factor is local zoning policies, which favor single-family homes over multifamily housing units22.
A 2022 report from the Othering & Belonging Institute at the University of California, Berkeley, states that, "the San Diego region's residential zones are predominantly zoned for single-family-only development, impeding the creation of denser housing options and fostering racial and economic exclusion for millions of Californians"23.
However, in 2024, the San Diego City Council approved a series of initiatives called Blueprint SD, intended to increase the development of new homes, among other goals24.
Retirement Thoughts for San Diego
To recap, the major pros and cons of a San Diego retirement are as follows:
Pros: Mild Climate and Superior Services
San Diego's agreeable weather and diverse recreational opportunities certainly attract many retirees. The area also boasts several highly-rated hospitals and healthcare facilities25.
San Diego's location is ideal for retirees who appreciate travel, with a downtown airport and coastline dotted with cruise ship terminals serving multiple lines18. The city's pedestrian-friendly downtown and coastal neighborhoods also make it easy to get around.
Cons: High Housing and Living Costs
The major challenge to a San Diego retirement is the substantial cost of living1. This is primarily due to the exceptionally high housing prices and the additional costs associated with taxes5. Retirees with substantial pensions and IRAs may find their income subject to considerable state income taxes.
Conclusion
San Diego's charming traits come at a price. Prospective retirees should crunch the numbers, considering the financial implications of a San Diego retirement, and comparing it to other attractive alternative retirement destinations to decide if the premium is worth it. For those who value the city's exceptional weather, recreational opportunities, and top-flight healthcare, it likely will be.
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[15]: https://www.medicare.gov/hospitalcompare/contents. html
- To offset the high cost of living in San Diego, retirees might consider alternative income sources like investing in tokens during Initial Coin Offerings (ICOs) for potential liquidity in their personal finance.
- Despite the pricy real estate market, buying a home in San Diego could still be an attractive investment, considering its popularity as a beachfront lifestyle destination and potential future property value appreciation.
- To manage personal finances effectively and make informed decisions about their retirement lifestyle in San Diego, retirees may find it beneficial to seek professional advice from financial advisors or personal finance experts.
- In addition to budgeting for high housing costs, San Diego retirees should also be mindful of home-and-garden expenses, as the desired lifestyle might include gardening, landscaping, or upgrades to their property.
- Instead of diving into the stock market, retirees looking to diversify their investments could consider real-estate investments, such as rental properties in up-and-coming neighborhoods in San Diego, as an alternative means to generate additional income and cover living expenses.
