Sometimes we ask to achieve difficult things in life—it’s human nature. We could be living somewhere perfectly affordable, but then we ask for the near-impossible. Don’t worry; I’m not mad at you.
I wrote an exquisite collection of articles called the Living Overseas Passively 101 series, where I give suggestions on how to move somewhere affordable. When talking about moving overseas, I envision $3,000-$4,000/month—on the high end.
Those numbers are very achievable, but I understand that you want to aim higher. So here we are, considering retiring in California. California is one of the most expensive places to live globally, and that’s when you are working there.
How Would You Invest $300,000?
To retire in California, you will need to be rich—extremely rich. That means you will need a very high amount of passive income flowing from various sources. For this article, we will aim for $200,000/year in passive income. Yes, that is two hundred thousand dollars a year in passive income.
That is a ridiculous amount of passive income; however, it is realistic for what we are trying to achieve. There is so much going on in California that you have to prepare yourself for everything.
If you didn’t know, I am from San Diego, California. I was born and raised there from 1981 to 1999 when I left for the Marine Corps. After I finished my job training, they stationed me in Miramar, California, in the middle of San Diego. Once I left there in 2002, the opportunity never arose for me to return.
I get the appeal of living in California; it’s just not my thing. I love living somewhere cheap, where my dollar goes as far as it can every day. My wife and I will retire in Pensacola, Florida, where our lives make sense. But to each his (her) own.
Now, let’s come up with a strategy for you to retire in California. Let’s make it San Diego, California, which is a little less expensive than San Francisco and Los Angeles. Like everything in Cali, our story will start with real estate.
How to Start Dividend Investing 103
Real Estate. There is no other way to get ahead in Cali without purchasing real estate very early in life. Ideally, you would buy a home in Cali in your early 30s and move away until you are in your 60s.
If you are a Cali outsider, the best way to get into the real estate game is through the military. The military pays you a salary, but they also give you a housing allowance according to your zip code. You can look up your Basic Housing Allowance by zip code here.
As an E-9, I would receive $3,366 in San Diego per month. Los Angeles is $3,609 and San Francisco is $5,202. These are some of the highest housing allowances in the United States.
If you are younger and dead set on retiring in California, joining the military and using your VA Loan is probably the best way to succeed. To be honest, doing your entire 20 years in the military makes sense as well.
Military retirement. A full military retirement can be all you need if you retire overseas or a lower cost of living area. However, in Cali, this is just the start of what you require. A military pension also covers rising medical expenses, which will save you a ton of money in the long run.
So far, we have bought a small home early on in our Cali career and maybe stayed in the military. However, the next thing we talk about is every bit as vital as real estate—a Roth IRA.
$1,000 Dividend Shopping Spree
Roth IRA. Nowhere has a Roth IRA been as necessary as in California. When you are talking about making a high income in a high state tax region, tax considerations must always be top of mind. Some people in California reach a 50% effective tax rate between Federal, State, and Local taxes.
A Roth IRA shields your income from taxes upon withdrawal, and we at least need the option to use our Roth distributions to lower taxes. Ideally, we want our Roth to grow tax-free forever, but this may not be a viable option in Cali.
We need to start building a Roth IRA very early because we can only tuck away $6,000/year until age 50 and then $7,000/year after age 50. That’s not a lot of money. Luckily, some 401Ks give us the Roth option. I am personally switching to the Roth option soon.
Municipal Bonds. Municipal bonds (munis) also gave us tax-free distributions. So, finding some good tax-free muni closed-end funds early is a must. I have Nuveen Municipal Bond Fund (NVG) in my portfolio. I currently have $3,000 in my muni bond fund, giving me $12/month tax-free. I will want to get that amount to $500/month over the next 20 years if I retire in California.
How Would You Spend $5,000?
Real Estate elsewhere. Yes, we own a small property in California, gaining equity and generating rental income while we grind elsewhere. Hopefully, we can harvest our equity in Cali to use to buy more homes elsewhere.
We need to be real estate moguls in a cheaper part of the country to achieve the high passive income for California. At least $100,000/year of the $200,000 goal needs to come from real estate. That equates to roughly $8,300/month from rental income.
We can either do that via a ton of single-family or multi-family properties. Owning a couple of apartment buildings may sound intimidating, but you can work your way up to becoming a real estate mogul.
The Passive Income Grind 2: Relax
To retire comfortably, especially in California, you will need to think very big. There is no way to make $200,000/year in passive income quietly. It will take a lot of hard work and dedication to achieve these high numbers.
Conclusion. We still have much more passive income to cover, but I don’t want a super article. I will cover the following sources of passive income in part two. Some other sources are dividends (primarily income investing), cryptocurrencies, automated business, and royalties.
As you can see, it requires a lot of thoughtful planning and intentional living to retire in California. The tax rate is ridiculous, real estate expensive, and the overall cost of living is high, so we need to prepare for our income not to travel very far.
If you are older, it will be hard to make inroads in California, but not impossible. You need to use things like house-hacking, RV living, etc., to reduce overall costs. I’ll go more into alternative living in part two or three.
Thanks for reading, and hopefully, I am giving you the full scope of what it takes to survive in California. Not just survive, but thrive. Please follow me on Twitter and my Facebook Page. Enjoy and Happy Investing.
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