How to financially prepare to spend the rest of your life in the Bay Area
James 'Jim' Cunningham is an estate planning, trust and probate law attorney who helps people make those plans. He's making one for himself, too: He plans to retire here. The founder of CunninghamLegal said he compares living in the Bay Area to living in a house with a great view.
When you're in that situation, it's easy to stop 'seeing' the view at all. It fades into the background. Cunningham said that's what happened to his parents and many clients he's worked with over the years who planned to move states when they retired. They got used to living in the Bay and assumed everywhere was just about the same, but with a lower cost of living and fewer taxes.
'They miss the culture and they miss the weather,' he said. When you live here, 'you don't see the good and you might focus on the bad.'
And there's plenty of talk about the bad. You don't have to look far on the internet to find people blasting California for its high taxes, housing costs and homelessness. California has the top marginal state individual income tax rate at 13.3%, according to the Tax Foundation.
But that's not the whole story. Cunningham broke down the hidden benefits in a post on his firm's website titled 'Why Retiring in California May Actually Be A Smart Idea.' For instance, though marginal rates are high, you'll pay a lot less on your presumably diminished retirement income compared to some states with flat tax rates. California is one of the states that doesn't tax Social Security benefits, and doesn't tax capital gains when a spouse dies. And you'll dearly miss that Prop. 13 property tax cap if you move somewhere like Texas.
San Francisco, in fact, was recently ranked as one of the top places for Americans to retire, according to the AARP. Yes, the cost of living is high, but there are plenty of upsides: Good health care, walkability, great weather, lots of places to go and things to do and see.
'I encourage people not to undervalue the importance of your social network, your friends,' said Terrance Odean, a professor of finance at the Haas School of Business at UC Berkeley. 'But you've got to look at the numbers too.'
Already, Northern California is one of the nation's oldest regions. In 2023, San Francisco had the third highest median age (41) of any large metro in 2023, and the highest outside Florida. Almost one-fifth of people here are over 65. And the total number of people over that threshold is expected to explode from about 750,000 in 2020 to over 1.5 million in 2050, according to projections from the California Department Finance.
The Chronicle has been looking at these numbers with a series of stories exploring the challenges already manifesting in the Bay Area because of its increasing older population. For instance, a once-vibrant Berkeley neighborhood is now essentially a single-family home retirement community. It's a potential harbinger of what's to come in other cities. One Sonoma County city has lost 35% of its children in a decade, even with qualities that make it feel like a 'family-friendly' destination.
Despite the ways an aging population could complicate life in San Francisco, and the region, it remains a wonderful place to live and grow old in. And while economists and community organizers address what we must do to keep the Bay Area a vibrant place to live, you are likely to have much more personal and practical concerns. Starting with: how to financially and logistically plan to live here forever. Here's what experts say.
See what you spend and then save, save, save
In high cost-of-living places like the Bay Area, retirement isn't an age. It's a number — specifically, the balances in your investment and savings accounts. To estimate what you'll need for spending when you're retired, you need to know what you spend now. If you aren't already, start tracking your expenses and figure out precisely where your money goes every month.
Then, envision what your retired life will look like. Are you going to travel? Buy a vacation home? Golf every weekend? Write out those costs and figure out how much of a nest egg you'll need to sustain your new lifestyle.
Hal Hershfield, a professor of marketing, behavioral decision-making and psychology at UCLA Anderson School of Management and author of the book 'Your Future Self,' said a lot of people think their costs will come down in retirement without the need for a commute or work clothes.
'That may be true but there are other things you will be spending money on,' he said. Those travel plans will add up fast — as will health care costs. Things like gas and homeowners' insurance cost more here. Plan for the fun stuff, of course, but plan for the less-fun aspects as well. Then save, save, save.
Another element is tax planning. Our state's tax code actually has some benefits for seniors. Though California's marginal tax rate is high, that only applies to income, Cunningham points out.
'People get wrapped around the axle on income tax, but the reality is many people in retirement, before they have required minimum distributions on IRAs, many times don't have a lot of taxable income,' he said. Again, California doesn't tax Social Security income, and while you pay taxes on interest on your savings account, you don't pay any to withdraw the principal. And your property taxes will remain stable thanks to Prop. 13.
He said he has seen people move out of state for a few years to take advantage of lower income tax rates so they can do things like sell a business or convert a Roth account. But if you sell your house to facilitate that move and don't plan for the Prop. 19 tax base carryover, you'll miss out on your low property tax rate when you move back.
The lesson: Work with a tax attorney to plan any complex financial moves like that. It's also worth thinking through the ethics of avoiding paying taxes to the state that provided the infrastructure and social safety net that facilitated your wealth-building.
Take steps to protect yourself and your money
There are going to be a lot of people you need to protect your money from. Scammers, certainly. Those offering predatory loans or perilous investment opportunities as well.
But also: yourself.
'It's depressing, because we don't like to think about cognitive decline,' said Terrance Odean, a professor of finance at the Haas School of Business at UC Berkeley. One of the major financial risks of aging is longevity — outliving your funds. The other is diminished self-control as you lose decision-making capabilities. And that's something you might not even realize is happening.
On his YouTube channel, Odean relays a story about his dad. The former high school teacher had been a careful saver his whole life, and purchased a long-term care policy when he retired. Twenty years later, he announced he'd canceled it.
'Dad was no longer thinking clearly,' Odean said. He cited a statistic: Scores on financial literacy tests decline about 1% per year as we age. But confidence in financial literacy doesn't drop. We lose our ability to make financial decisions but don't know we're losing it. If you've been fortunate enough to find success and build a life in the Bay Area, you're probably pretty smart — which can make it even harder to accept that your ability to keep making good decisions has declined.
Here's what experts recommend you do:
Delay drawing Social Security. One way to protect yourself from the longevity risk is by waiting as long as possible to take Social Security. That's your bottom line, Odean said: If the market collapses or a scammer gets their hands on your bank accounts, you can still count on Social Security coming in (assuming the problems reported by recipients following DOGE changes are temporary). He said the only time he'd make an exception is in the case of a terminal health diagnosis.
Buy an annuity. Another recommendation Odean gives is to invest your nest egg in an annuity with no cash value. That last part is important: It means a scammer won't be able to wrest it from your clutches. Some annuities have riders where coverage increases if you need long-term care.
Invest in long-term care insurance. Nearly 70% of adults who reach the age of 65 will require long-term care for an average of three years, according to LongTermCare.gov. A report from the Joint Center for Housing Studies said the annual median cost of assisted living and related living expenses in the San Francisco metro area is $96,800.
'Everybody's goal should be to private pay for their long-term care needs,' said Chris Orestis, the author and founder of retirement planning platform 'Retirement Genius.'
Pick a financial confidant. Before you need any help making financial decisions, choose someone — maybe a child, a fiduciary or an attorney — and get into the habit of discussing major money moves with them. You may want to appoint them co-trustee of your trust or give them power of attorney if you can't make decisions any more.
Diversify assets. As you approach retirement age, work with a financial adviser to diversify your holdings to a blend of stocks, bonds, and cash in a high-yield savings account.
Consider options for your living situation. If you've owned your property for a long time and paid down your mortgage, you have a lot of options for your living situation as you age. You could tap your equity with a second mortgage or by getting a reverse mortgage, though you should research them thoroughly and discuss lenders with an attorney or financial adviser before getting one. You could also utilize Prop. 19 to sell your home and buy a new one that better fits your needs while carrying over your reduced tax base.
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