Estimated Retirement in Tennessee at Age 62: Zero Income Tax and $800,000

Retiring in Tennessee at age 62 with an eight hundred thousand dollar investment portfolio is possible, but this is not a universally applicable scenario. Tennessee's lack of a state income tax offers a significant advantage for retirees, particularly regarding IRA withdrawals and Roth conversions. However, the high sales taxes applied by the state somewhat diminish this advantage. For this retirement plan to be successful, it is crucial to own a paid-off home outside the Nashville metropolitan area. Additionally, it is necessary to keep healthcare costs under control until Medicare at age 65 and to make low-rate withdrawals that will preserve the portfolio for at least thirty years.

To understand retirement costs, one must first look at different regions of Tennessee, as the cost of living is not uniform across the state. According to MERIC's data for the first quarter of 2026, Tennessee's cost of living index is calculated at 88.9 compared to the national average of 100. This average indicates that Nashville and its surrounding area are no longer an affordable place to retire, whereas regions like Knoxville, Chattanooga, and Clarksville remain more reasonably priced. For this scenario to work, living in a fully or mostly paid-off home is essential. For example, for a single retiree who owns a home without a mortgage in the Knoxville or Chattanooga areas, annual expenses hover around $40,000. When the national average consumer expenditure is $78,535, getting by on $40,000 in East Tennessee is very tight, though achievable with careful management.

An eight hundred thousand dollar savings and Social Security payments form the foundation of the retirement math. For individuals whose full retirement age is considered 67, claiming these benefits at age 62 can lead to a reduction of about 30 percent in monthly payments. While the monthly yield for a middle-income worker at age 62 remains between $1,400 and $1,600, this situation means an annual income of approximately $18,000. By subtracting this amount from an annual budget of $40,000, the annual amount to be covered by the portfolio drops to approximately $22,000. This amount equates to an extremely safe and low withdrawal rate of 2.75 percent from an $800,000 portfolio.

One of Tennessee's biggest attractions is the absence of a state income tax on wages, investment incomes, IRA and 401(k) withdrawals, pensions, and Social Security payments. The complete elimination of the Hall tax on interest and dividend income starting from 2021 has made this situation permanent. However, the state generates its revenues largely from sales taxes. The state-level sales tax rate is applied at 7 percent for most goods and 4 percent for food, with local sales taxes adding up to 2.75 percent on top of this. According to Tax Foundation's 2026 data, this brings Tennessee's combined average sales tax rate to 9.61 percent, one of the highest in the country. Therefore, Tennessee imposes a hidden tax burden on retirees at the cash register, that is, at the grocery checkout.

One of the most critical points in retirement planning is the transition period from age 62 to 65, supported by the ACA (Affordable Care Act). During this three-year period before Medicare begins, health insurance premiums and out-of-pocket expenses deeply strain the budget. The premium tax credits in the market are based on federal adjusted gross income, not state tax revenue. For couples, the presence of two Social Security incomes and a paid-off mortgage significantly eases the math. However, for a single individual, the margin for financial error is extremely low, and buying a home in an expensive area like Nashville, carrying a mortgage burden, or losing healthcare subsidies can crash the budget.