California Taxes Almost Everything Except Social Security. Can a Couple Still Retire in Sacramento at 66 on $1.4 Million?

Once a Sacramento couple starts talking about retirement, friends tend to say the same thing: move to Nevada or Texas and keep the money California would take. Some couples prefer to stay. So the real question is whether two 66-year-olds with $1.4 million saved can stay and live well. The figures below look at that question, including how the picture changes depending on whether the house is already paid off or the savings have to buy it.

What California Taxes and the One Big Thing It Leaves Alone

California’s Franchise Tax Board handles Social Security differently from federal law. Retirees subtract any U.S. Social Security that was included in federal income on their state return (FTB Publication 1005). Pension and IRA income gets the same treatment as under federal law, so it’s taxed as ordinary income. For 2025, joint filers start with an $11,800 standard deduction. After that they pay 1% up to $22,158, 2% up to $52,528, 4% up to $82,904, 6% up to $115,084, 8% up to $145,448 and 9.3% up to $742,958^[1].

Sacramento’s combined sales tax is 8.75%. Property tax rules limit increases for long-time owners. Under Proposition 13, a home’s assessed value can’t rise more than 2% a year^[2] (Cal. Rev. & Tax. Code § 619(f)). Under Proposition 19, homeowners 55 or older can transfer their primary residence’s taxable value to another California primary residence purchased within two years of the sale, up to three times (§ 69.6(a)).

A Sacramento Budget That Leaves Room to Spare

Sacramento County’s median sold price was $555,000 in September 2026, and the FHFA metro index rose 0.08%^[3] over the past year. Prop 13’s base rate of 1% on that price comes to about $463 a month before voter-approved bonds. The other lines in the table are planning allowances for a comfortable middle-class retirement.

A senior couple both drawing benefits gets an estimated average of $3,355^[4] a month after the 3.6% COLA starting in 2027, which is about $40,260 a year. A 4% withdrawal from $1.4 million adds $56,000. Combined, that’s about $8,022 a month against the budget, which leaves a surplus near $1,337.

The tax line assumes the $56,000 comes as $50,000 in IRA withdrawals plus $6,000 in dividends and interest. California taxes all of it and none of the Social Security, for about $670 before exemption credits. On the federal side, the couple’s income crosses the $44,000^[5] joint threshold in 26 U.S.C. § 86(c)(2)(B), which makes roughly $33,311 of the benefits taxable. After the $32,200 standard deduction, another $3,300 in age-based deductions, and the $6,000^[6] senior deduction for each spouse, the federal bill comes to about $4,521

Looked at from the other side, this budget only needs a 2.85% withdrawal rate. At 4%, a portfolio of about $999,000 would cover it. Paying cash for the median home out of the $1.4 million instead would drop monthly income to about $6,172, which is below the budget.

What Sacramento Gives Back and What It Costs

Many couples see Sacramento as a lower-cost alternative to the Bay Area. Napa and Sonoma wine country is to the west, the Sierra is to the east, and UC Davis Medical Center is in town. Some couples also have kids and grandkids nearby. Summer heat drives up air-conditioning bills, though, and wildfire smoke can keep people inside for days.

Insurance costs have been changing. State Farm’s California homeowner rates were set to rise 17%, and non-renewals have forced some owners onto the state’s FAIR Plan, which is often the insurer of last resort. That $250 insurance line could turn out to be low.

Roth Conversions Before Required Withdrawals Arrive

Because there’s a surplus and the couple sits in low brackets right now, they have room to move money from a traditional IRA into a Roth. California follows federal law on Roth IRAs, and Roth accounts have no required withdrawals while the owner is alive. Converting $50,000 on top of the base plan would add about $2,075 in California tax and $6,109 in federal tax. Their income would still stay under the $218,000 joint line where Medicare’s IRMAA surcharges (extra income-based premiums) start.

That state tax is a cost of staying in California, and it is assessed now at 4% and 6% rather than later on larger required withdrawals in the 70s. Those low-bracket years between retiring and the first required withdrawal are the whole subject of our free Roth conversion window guide.

How $1.4 Million Holds Up in Sacramento With a Paid-Off House

A 66-year-old couple can stay in Sacramento on about $6,700 a month if they have a paid-off home and average Social Security. The plan needs roughly a 3% withdrawal rate, so the gap up to 4% works as a buffer against insurance increases, medical bills and weak markets.

To keep the principal intact, the portfolio would need to earn that 3% plus inflation. If the savings also have to buy the house, delaying Social Security or buying a smaller home are two ways the gap could narrow. California’s annual tax bill on this plan is about $670 before exemption credits. Another state tax factor is how much to convert to Roth while their income is still low.

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