Retirees increasingly finding greener pastures by leaving California - Sacramento Business Journal (2024)

It’s not just businesses that are moving out of California. Retirees are leaving in growing numbers.

For whatever reason they move, the retiree exodus is taking knowledge, wealth, patrons of the arts and potential philanthropy out of communities in the Golden State to the benefit of other places.

The trend dovetails with larger concerns about California’s affordability, business climate and economic disparities.

“It’s not just retirees moving. It’s companies. It’s rich people and poor people,” said Sanjay Varshney, professor of finance at California State University Sacramento and founder of Goldenstone Wealth Management LLC in El Dorado Hills.

Poorer people are leaving the state because “they can’t make ends meet” with the high cost of living and housing, he said. “And extremely wealthy people are moving because they are fed up.”

Varshney said a migration of wealthy people are leaving the Bay Area in particular, and “you are seeing that with people like Elon Musk and corporations like Oracle, Tesla and Hewlett Packard Enterprise.”

Retirees can easily leave California, as they are no longer tied to jobs in the state. “Retirees are a very mobile part of the population,” Varshney said

The trend appears to be growing. The California Public Employees’ Retirement System tracks where it sends benefits, and more of its members no longer call California home. Some 85% of CalPERS retirees lived in the state 2013. That dropped to 84% in 2018 and to 82.3% in 2020, according to the pension system.

Taxes and politics

The Greater Sacramento Economic Council’s mission is to attract companies to relocate to the Sacramento area. By the time companies decide to move out of the Bay Area, they are often soured on California taxes and regulations, and they tend to move out of the state completely, said Barry Broome, Greater Sacramento’s CEO.

The same can be said for individuals, he said.

“A lot of this is tax,” Broome said. California has higher business taxes and higher individual tax rates than most other states.

“We are still a terrific value proposition in California,” Broome said of Sacramento. But other states are actively recruiting companies to move out of California. “Our policymakers have to wrap their heads around this. It’s not that hard to move your company, or yourself, to Austin.”

One big driver that motivated even more people to move out of state was legislation proposed two years ago to increase taxes on the wealthiest Californians. It didn’t pass, but it roiled an already irritated class of decision-makers.

“You do have a tipping point in this,” Broome said. “You don’t want to get to the point where you tip this thing.”

Assembly Bill 1253, introduced in 2019 by Los Angeles Democrat Miguel Santiago, sought to raise state income taxes on the richest Californians. In addition to the states’ existing highest personal income tax rate of 13.3%, the bill would have added an additional 1% on income over $1.18 million, an additional 3% on income over $2.36 million and an additional 3.5% on income higher than $5.9 million. The bill died in the late summer of 2020.

Santiago and several co-authors have said they will introduce a new bill this year that would add a 1% tax on net worth in excess of $50 million, not including real estate, and a tax of 1.5% on net worth in excess of $1 billion, again, not including real estate.

High California costs

Much like how Bay Area residents who sell homes there find Sacramento housing more affordable, people who sell homes in Sacramento are often able to buy more property in other states, Broome said.

Kelly Brothers, a partner in Genovese, Burford & Brothers Wealth and Retirement Plan Management LLC, has worked as a financial adviser in Sacramento for 15 years, and he now has clients in 17 states.

“Every week I’m working on relocations,” Brothers said. He even has software to help clients see their income if they remove California taxes. In some ways, the comparison is not exactly fair, because sales taxes and property taxes in other jurisdictions can be higher, Brothers said.

He noted that it’s not just people seeking lower taxes or who are fed up with California’s policies who move. In many cases, people moved to California to work here, and when they retire, they can go back home.

“Often, it’s not for tax reasons,” Brothers said. “You tell me where your grandkids live, and I’ll tell where you are going to live.”

He said less than 10% of his clients have left the state, “but they are leaving.”

The retiree exodus has greater implications than just people moving away. Many retirees are people who could volunteer their time for causes, but who won’t be here to do so. And from what Brothers has seen, many are people who’ve been supportive of their communities and charities, he said.

Genovese Burfurd & Brothers was acquired in early February by employee-owned Captrust Financial Advisors, based in Raleigh, North Carolina.

Allworth Financial, which is based in Sacramento, has bought retirement practices in the Dallas and Houston areas. The clients of those firms tend to stay close to home after retirement, said Scott Hanson, Allworth’s co-founder. “Not many people move from Texas.”

Allworth, which has $10 billion in assets under management, in December bought a small advisory firm, Bastoni Financial Services, that had $270 million in assets under management and four employees. Despite being a small shop focused on the market around Folsom Lake, it had clients all across the country.

“That’s what you find when you have a retirement practice in California,” Hanson said.

The main reasons people say they want to leave California are taxes and cost of living, he said. And, to some extent, people leave because their kids moved out of state because they couldn’t afford to live in California and buy a house, he said.

According to CalPERS, nine of the top 10 out-of-state ZIP codes where its beneficiaries live are just across the state line. In Oregon, Brookings is just north of the border on the coast, and Grants Pass is just north of the state line on Interstate 5. In Nevada, the cities of Minden, Sparks and Reno are just east of Lake Tahoe. And in Arizona, Lake Havasu City and Bullhead City are on the border of Southern California.

“That makes sense. It’s a gentle move. You just move across state lines,” Varshney said.

The Rancho Cordova office of accounting firm Moss Adams LLP has an entire group specializing in state and local taxes, and one of the main things it works on is helping people move out of state and make a clean residency transition, said Francine Vorhees, a partner in the firm.

“People are just tired of the taxes and politics,” she said. “Clients are selling their properties and moving.”

She said some people move because of the taxes, but many are moving because their kids and grandkids are moving for better opportunities.

She cautions that people who decide to move out of state must actually do it, and not just move on paper. If someone moves to Nevada, but still makes all their money working for a California company, that can be a problem, and the California Franchise Tax Board is aggressive in collecting California taxes from people even in other states if they earn a paycheck inCalifornia.

“I tell my clients, ‘don’t move just for taxes,’” she said. Adding that “if you move out of state, you really have to move.”

This is an issue that comes up locally because people can have a home in Lake Tahoe or somewhere just over the state line, which they may claim as their principal residence. If you do that, then you need to work over there, she said.