Honest breakdown: what's taxed, what's exempt, worked examples for typical retirees
California has the highest state income tax in the country (1–13.3% depending on bracket). But not all retirement income is taxed equally. Some is exempt entirely. This guide explains what you actually owe.
If Social Security is your only income, you owe $0 California state income tax. Period.
Example: Age 70, collecting $3,500/mo Social Security = $42,000/yr. California tax: $0.
California recently added a military pension exclusion: up to $20,000/year of military retirement pay is exempt from state income tax.
Example: Retired Captain collecting $3,500/mo military pension = $42,000/yr. First $20,000 exempt, $22,000 taxed = ~$1,650 state tax (assuming 7.5% bracket).
Note: This is a new benefit (2025+). Many military retirees didn't know about it until recently.
California excludes certain government pensions (federal, military, railroad retirement). If your pension is from government service, it may be partially or fully exempt. Check with a CPA.
Note: This exempts property tax, not income tax. But it's valuable. 100% disabled vets pay $0 property tax in California.
Fully taxable at California income tax rates (1–13.3% depending on amount).
Example: Age 72, required minimum distribution of $50,000 from IRA. Entire $50,000 is California taxable income.
Income: $80,000 (fully taxable in CA)
Standard deduction (age 65+): $5,150
Taxable amount: $74,850
CA tax estimate (2025 rates): ~$5,600
Effective tax rate: 7% on gross $80,000
Fully taxable at the same rates as ordinary income (CA doesn't distinguish long-term vs. short-term).
Example: Sell stock at $100K profit. Entire $100K taxable in California at your marginal rate (could be 9.3% or higher).
Fully taxable. If you own rental property and collect rent, California taxes all of it.
Fully taxable. Corporate pensions, union pensions, non-government pensions are all California taxable income.
| Scenario | Sources | Total Income | CA Tax Estimate | Notes |
|---|---|---|---|---|
| Conservative Retiree | Social Security only | $40K/yr | $0 | No tax if SS is only income |
| Military Retiree | Military pension ($36K) + SS ($24K) | $60K/yr | ~$1,200 | First $20K pension exempt |
| Corporate Pension | Pension ($60K) + SS ($24K) | $84K/yr | ~$5,600 | Pension fully taxed, SS exempt |
| IRA-Heavy | IRA dist ($80K) + SS ($24K) | $104K/yr | ~$7,000 | IRA fully taxed, SS exempt |
| Affluent Retiree | All sources ($120K+) | $120K+/yr | $10,000+ | Higher brackets (9.3%+) |
California's tax brackets are progressive and steep:
For a retiree with $100K taxable income: effective rate ~7%, paying ~$7,000/year in state income tax.
| State | Social Security Tax | Pension Tax | Income Tax Rate (Typical) |
|---|---|---|---|
| California | Exempt | Taxed (some military exempt) | 1–9.3% |
| Texas | Exempt | Exempt | 0% (no income tax) |
| Arizona | Exempt (if under $50K total income) | Taxed | 2.55–5.5% |
| Nevada | Exempt | Exempt | 0% (no income tax) |
California is not the worst (some states tax Social Security), but it's definitely not the cheapest (Texas, Nevada, Arizona are better for high-income retirees).
Despite high taxes, retirees move to California because:
Net result: For a retiree with $60K Social Security (tax-free) + $40K pension (taxed), California effective rate is only 3–4%, which is competitive with other states.
1. Calculate your retirement income mix: How much SS, pension, IRA, capital gains? 2. Estimate your CA tax using a calculator or CPA. 3. Consider whether CA tax burden affects your decision to move to San Diego. 4. Remember Prop 19: CA income tax is one lever; property tax savings (via Prop 19) is another.
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