California Retirement Success: Overcome Obstacles & Grow Your Savings

Taxes significantly impact retirement savings, making it vital to fully understand how California's tax structure affects your income unlike some states that offer tax breaks for retirees, California taxes most retirement income at its progressive state income tax rates, which range from 1% to 13.3%.

How California Taxes Retirement Income

• Company pensions, 401(k), and traditional IRA distributions – Taxed as ordinary income.
• Social Security – Not taxed by California but may be taxed up to 85% federally, depending on total income.
• Investment income (Capital Gains, Dividends, Interest) – Subject to federal and state taxes.
• Property taxes – Proposition 13 limits annual property tax increases for qualifying homeowners. However, California's high home values can still result in sizable tax bills, especially when purchasing a new home or relocating.

Strategies To Minimize Taxes in Retirement

• Strategic withdrawals – Utilize tax diversification by withdrawing from taxable, tax-deferred, and tax-free accounts in a structured way.
• Roth conversions – Converting traditional IRAs or other tax-deferred retirement accounts to a Roth IRA in lower-income years can reduce taxable distributions later. Also, Roth IRAs do not require RMDs, offering a key retirement tax benefit in California.
• Tax-efficient investments – Consider municipal bonds and tax-managed funds to help reduce investment-related taxes.
• Tax-loss harvesting – Selling underperforming assets to offset capital gains can help lower overall tax liability.
• Asset placement – Holding investments for over one year qualifies them for long-term capital gains rates, and certain dividend-paying stocks produce qualified dividends, which are also taxed at long-term rates.

Taking a proactive approach to tax planning can help you retain more of your hard-earned wealth.

Recent market volatility has created substantial challenges for investors, particularly retirees. While short-term market swings are unavoidable, lacking a well-structured investment strategy can put retirement savings at risk.

Managing Market Volatility in Retirement

One of the most effective ways to manage risk is through diversification. Being too concentrated in a single investment or sector increases exposure to significant losses. By spreading your investments across various asset classes, you can minimize the impact of any single market downturn. Key principles include:

• Diversification across asset classes – A balanced portfolio typically includes equities, fixed income (bonds), real estate, and alternative assets to help reduce risk.
• Asset allocation based on risk tolerance – Conservative investors may prefer a higher percentage of bonds and dividend stocks, while those with a greater appetite for risk might favor equities and growth-oriented assets.
• Rebalancing to stay on track – Market shifts can throw asset allocation off balance. Regular portfolio rebalancing helps maintain the desired level of risk and return.

Inflation and Interest Rate Considerations

Rising costs can erode purchasing power, making inflation protection a critical part of retirement planning. Retirees relying on fixed income may struggle to keep up with expenses over time. Strategies to help offset inflation include:

• Stocks – Equities historically outpace inflation, making them a key retirement asset.
• Treasury Inflation-Protected Securities (TIPS) – Adjust with inflation to help preserve purchasing power.
• Dividend growth stocks – Companies that consistently increase dividends provide income and an inflation hedge.
• Alternative investments – Real estate, commodities, and private equity can diversify portfolios and counter inflation.

Adapting to Market Conditions

Economic conditions can change quickly, and investment strategies should evolve with them. Regular portfolio reviews can help you adapt to changing market conditions without making emotional decisions. Adjustments may be necessary based on life events, changes in income, or a shift in your risk tolerance.

Bulman's financial advisors in California can assess your investment strategy and recommend refinements that align with your long-term retirement goals.

Creating a sustainable income stream is one of the biggest financial challenges retirees face. Without careful planning, it's easy to overspend early in retirement, leaving fewer resources for later years. The right withdrawal strategy can help extend the life of your savings while minimizing tax burdens.

Sources of Retirement Income

Retirees typically rely on a mix of income sources, including:

• Social Security – Provides a baseline income but may not cover all expenses. Delaying benefits can increase monthly payouts.
• Pensions and annuities – Some retirees have employer-provided pensions or annuities that provide predictable income.
• Personal savings and investments – Includes 401(k)s, IRAs, brokerage accounts, and cash reserves. Required Minimum Distributions (RMDs) begin at age 73 for tax-deferred accounts, meaning retirees must plan for taxable withdrawals.
• Real estate income – Rental properties or downsizing can create additional cash flow.

Withdrawal Strategies for Longevity

A structured withdrawal plan helps prevent running out of money too soon while adapting to changing market conditions. Key strategies include:

• The 4% Rule – A common guideline suggesting withdrawing 4% of savings annually for sustainable income, though adjustments may be needed based on market conditions.
• Bucket Strategy – Divides assets into short-term (cash), mid-term (bonds), and long-term (stocks) investments to balance risk and provide liquidity when needed.
• Floor-and-Ceiling Method – Adjusts withdrawals annually based on portfolio performance, setting a minimum (floor) to cover essential expenses and a maximum (ceiling) to avoid depleting savings too quickly in down markets.

Bulman's advisors can assist you in developing flexible withdrawal strategies that adapt to economic changes, helping sustain your retirement income planning in California over the long term.

A comprehensive estate plan helps you pass assets to heirs efficiently while minimizing taxes and legal complications. Without proper planning, estates may go through California's lengthy probate process, leading to delays, high fees, and unnecessary taxes.

Avoiding Probate in California

Probate is the court-supervised process of distributing assets after someone passes away. In California, probate can take months—or even years—while costing up to 5% of the estate's value in legal fees and expenses. Some key strategies to avoid probate include:

• Revocable living trusts – Unlike wills, trusts allow assets to pass directly to beneficiaries without court involvement.
• Transfer on Death (TOD) and beneficiary designations – Retirement accounts, life insurance policies, and some bank/brokerage accounts allow direct beneficiary transfers.
• Joint ownership – Owning property with rights of survivorship allows it to transfer automatically to a co-owner.

Minimizing Estate Taxes

Although California does not impose an inheritance tax, federal estate taxes apply to large estates. In 2025, the federal estate tax exemption is $13.99 million per person but is set to drop in 2026 unless Congress takes action. Retirees with significant assets may benefit from strategies such as:

• Irrevocable Life Insurance Trusts (ILITs) – Removes life insurance proceeds from the taxable estate.
• Gifting strategies – The annual gift tax exclusion allows individuals to gift up to $19,000 per recipient in 2025 without affecting lifetime exemptions.
• Charitable Remainder Trusts (CRTs) – Allow you to donate appreciated assets while receiving an income stream and reducing tax liabilities.

Keeping Estate Plans Up to Date

Major life events like marriage, divorce, the arrival of grandchildren, or changes in tax laws can impact your estate plans. Regularly reviewing your documents ensures they reflect your current wishes and comply with legal requirements.

Preparing for long-term care is vital for financial stability as healthcare costs continue to climb. Unfortunately, many underestimate the expenses associated with extended care, leaving one vulnerable to economic hardship.

Understanding Long-Term Care Costs

Long-term care expenses in California are among the highest in the country, and costs vary depending on the level of care needed. Home care typically averages around $7,000 monthly, while assisted living facilities often charge approximately $6,500 monthly. A private room can exceed $11,000 per month for those requiring nursing home care.

Funding Long-Term Care

Since Medicare does not cover most long-term care expenses, retirees must explore funding options like:

• Long-term care insurance – Helps cover care costs but is best purchased before premiums become too expensive. Some policies offer hybrid coverage, combining long-term care benefits with life insurance.
• Health Savings Accounts (HSAs) – Can be used tax-free to pay for qualified long-term care insurance premiums.
• Medicaid (Medi-Cal in California) – Provides coverage but requires meeting strict asset limits before qualifying.

Planning Ahead for Care Needs

Thinking about extended care for oneself or a loved one is very uncomfortable; however, planning ahead is wise. A thoughtful long-term care plan should address where care will be received, how it will be funded, and who will manage financial and medical decisions. Setting up powers of attorney and healthcare directives allows trusted individuals to step in and help when the time comes.

Retiring early offers flexibility and lifestyle benefits, but it also presents several financial challenges.

Key Considerations for Early Retirement

If you're retiring before full retirement age, here are some important things to address:

• Healthcare costs – Without employer coverage, retirees must secure private insurance, COBRA, or ACA marketplace plans until Medicare begins at 65. Health Savings Accounts (HSAs) can help cover qualified medical expenses tax-free.
• Early withdrawal penalties – Accessing retirement accounts before age 59½ can trigger a 10% penalty unless using strategies like Roth IRA contributions (which can be withdrawn penalty-free) or Rule 72(t) for substantially equal periodic payments (SEPPs).
• Income planning – Identifying sustainable income sources before claiming Social Security, such as dividends, rental income, company pension, or annuity payments, can help bridge the gap and add stability.

Checklist for Early Retirees

• Calculate living expenses and create a retirement budget, including an inflation buffer.
• Assess healthcare coverage options until Medicare eligibility.
• Plan for tax-efficient withdrawals from savings, considering taxable, tax-deferred, and tax-free accounts.
• Explore part-time work, consulting, or phased retirement options to supplement income.
• Evaluate Social Security claiming strategies for long-term benefits.
• Keep a cash reserve to manage unexpected expenses without disrupting investments.

Early retirees will need to maintain flexibility in their financial plans to adapt to unexpected costs and market fluctuations.

A successful retirement starts with thoughtful planning and a clear understanding of California's distinct financial landscape. From tax regulations and investment strategies to long-term care considerations, every decision you make shapes your long-term financial security.

Have You Reviewed Your Plan Recently?

Even if you already have a financial plan, when was the last time you revisited it? Life changes, personal priorities shift, and market conditions fluctuate—all of which can impact your strategy. Regular reviews uncover needed areas for improvement, such as implementing tax-saving strategies or adjusting portfolios to better match your current goals and needs.

Working With a Financial Advisor in California

Partnering with an experienced financial advisor like those at Bulman Wealth Group provides tailored insights and a second pair of eyes to spot overlooked risks and opportunities. A Bulman advisor can help with:

• Retirement income planning – Structuring withdrawals for long-term sustainability.
• Investment strategies – Adjusting portfolios to fit risk tolerance and market conditions.
• Estate and legacy planning – Creating a plan that reflects financial goals and family needs.
• Healthcare and long-term care planning – Preparing for future medical expenses.
• Retirement tax benefits in California – Identifying ways to reduce tax burdens.

Take the Next Step Toward Financial Confidence

Retirement planning isn't a one-time event—it requires ongoing adjustments and proactive decision-making. Whether reviewing an existing plan or building one from the ground up, working with a knowledgeable financial partner can help you create a strategy that lasts throughout retirement.

Want to feel more confident about your financial future?

Contact Bulman Wealth Group today for a free, no-obligation consultation.