Why So Many Are Retiring to Tennessee — What You Should Know (124)

Retiring to Tennessee sounds simple until you start adding up the real numbers. We hear the same line again and again: “Tennessee is tax-friendly.” That’s true, but it’s also the fastest path to a bad decision if taxes are the only thing you consider.

In this episode I walk through what “no state income tax” actually means for retirees and what it doesn’t mean. Tennessee doesn’t tax IRA and retirement account withdrawals, pension income, or Social Security at the state level, which can be a meaningful benefit for people moving from high income tax states. But federal taxes still apply, and the biggest win is often better tax planning flexibility, especially if you’re considering Roth conversions early in retirement. Let's also pressure-test the assumption that Tennessee is always “lower cost.” Housing has climbed fast in places like Nashville, and even historically affordable areas like Chattanooga and Knoxville are changing as more people move in.

The trade-offs people miss on the highlight reels: High combined sales tax that can approach 9% to 10%, healthcare access that varies a lot by location, and weather realities like hot humidity, storm risk, and brutal seasonal allergies. We also talk about growth and infrastructure, including traffic congestion and rising demand that can reshape the day-to-day experience of retirement.

If you’re thinking about relocating for retirement, use this conversation as a checklist for evaluating taxes, cost of living, lifestyle fit, and your full income strategy. Subscribe, share this with someone considering a move, and leave a review with your biggest question about retiring to Tennessee.

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Thanks for Listening! 

Jonathan

Transcript

Why Tennessee Is On The List

SPEAKER_00 0:04

If you're thinking about retiring to Tennessee, you're not alone. In fact, Tennessee has consistently ranked as one of the top inbound states for retirees relocating from other places. And I see this firsthand working with families who've moved here or considering moving here from places like California, Connecticut, Illinois. But there's one thing that's very interesting. Almost every conversation starts the same way. That is around taxes. They've heard that Tennessee is tax-friendly, but they're not exactly sure what they're missing. They don't know what they don't know. Tennessee can be an incredible place to retire. I might be biased, I live here, I'm not retired yet, but there are some things that you need to consider and think about. There are some trade-offs that don't show up on the highlight reels you may be seeing on Instagram or YouTube or Facebook. So in this video, I'm going to walk you through some things to consider as you're trying to plan for where are you going to retire to? Are you going to relocate? So we're going to talk about is uh some real financial advantages, maybe the hidden costs people overlook, and how to know if Tennessee actually fits your retirement destination. So first, why are retirees moving to Tennessee? Let's start with this. This is the biggest thing, the biggest reason I think uh are getting retirees' attention and creating that magnet for people to move and retire to Tennessee. And that is no state income tax. But let's go a little bit deeper. Tennessee is one of the few states with no state income tax. There's a couple of others out there. So what does that mean? That means there's no tax on your IRA or your retirement account withdrawals, there's no tax on your pensions, and there's no tax on your Social Security. That's important to know and understand, but that doesn't mean there's no taxes at all. It just means there's no state income tax on those. So you would still be required to file uh taxes federally on your 1040, uh, and all of those things would be taxable events or taxable income on your 1040. They do not require a state tax filing and there's no state tax income on them. So that's an important planning nuance that a lot of people miss. They hear no state income tax and they all of a sudden think that there's no tax at all. That's not the case. So be be mindful of that when you're thinking about does it make sense to relocate from a steady, uh, excuse me, a high-income tax like California or New York to a place like Tennessee that has no state income tax. It can feel like a massive win, but it's important to understand all of the details. Uh it might not be as life-changing as you once thought it was when you fantasize about no income tax. So uh just just be thinking about that. Let's let's walk through an example. Let's say you had a$100,000 retirement income and there's a 5% state income tax somewhere else. Uh, I think Michigan's is around 5%. I don't have the exact figure uh in front of me. I want to say 475, maybe five and a quarter. Um, anyway, so is it helpful to not have that additional state income tax of roughly 5%? Sure. Is it transformational? Not necessarily. The bigger benefit here, I think, is the flexibility in tax planning, especially when you're doing Roth conversions early in retirement. So, how do we look at when we're giving you financial planning advice, when we're giving you retirement planning advice, how do we look at the entire picture to include uh state income tax, federal income tax, and how those might plan into or play into things like Roth conversions? So let's now talk about cost of living. That's another benefit that uh people uh think is a benefit for moving out of a high cost of living state like Illinois or California and into a lower cost of living like Tennessee. So Tennessee is still relatively affordable, but it's no longer cheap. Um there are some areas that that you know might be cheap, but reality is uh Tennessee is becoming much more costly to live in, to retire in than it once was. So uh a couple cities here, Knoxville, still still a strong value, um, but it is becoming more and more congested. There are uh still some reasonable housing, but housing is becoming more expensive. Chattanooga is growing very fast. Um, there's still some affordability in housing, but again, houses are are are increasing there as well. And then Nashville has had significant price appreciation. Um so medium home prices, median home prices have increased dramatically in all of these locations and throughout the rest of the state over the last five years. And so it's important that as you think about this trade-off, while you might save on some taxes, you might spend more on housing or more than you would have five years ago. So that's something to think about as you start to map this out to see does this decision make sense? Now let's talk about property taxes. Property taxes go hand in hand with real estate as you're you know, maybe moving and acquire acquiring a home here in Tennessee. And this is where I think Tennessee really shines. Property tax rates are among the lowest in the US, and many retirees coming from uh you know Northwest or Pacific uh uh northwest or or even in the northeast may see significant savings here. In fact, I have friends in Dallas who spend five times more in property tax than I do. Uh and so I find that interesting. And depending where you go, I'm here in Chattanooga, depending on where you go, you could find similar situations where you know you might have city and county taxes in one part of the city or metro area, but in another, you may only have county property taxes. So it's important to be thinking about how these property taxes are going to affect uh your cost of living here. But overall, property taxes in Tennessee are substantially lower than you see in other states around the country. So that's a huge benefit, and again, where I think Tennessee may really shine. The next thing I want to talk about is you know lifestyle and quality of life. Uh, this is not a part you can quantify with dollars, um, maybe to a slight extent, but for the most part, uh you can't quantify your quality of life and your lifestyle, relocate somewhere else, but it's often the real reason people move. And they want to get away from maybe the the larger cost of living metropolitan cities, and they want to have a quiet lower key area to live in. Um and so Tennessee offers uh a lot of great access to lakes across the uh across the state. Um there is uh Tellico, Chickamauga, Watts Bar, uh there's Dan, there's a lake in Dandridge, there is Melton Hill, there's uh Pickwick State Park, there's all kinds of places, uh Nickajack, there's literally uh all kinds of lake access that you can get to and uh enjoy some of that lifestyle that maybe you don't get in a Dallas or Chicago or you know, higher cost of living uh city, Denver, some of those places. So tons of lake access if that is your thing. We also have tons of mountains. So uh I say tons. We have one of the longest mountain chains in the country with the Smoky Mountains uh driving distance away from anywhere in the state, but specifically uh in East Tennessee. And the state parks that surround these mountains, these smoky mountains, it is uh incredible for those of you that want to hike, see waterfalls, explore nature, do some caving, any of that stuff. So a lot of great benefits with lake access and mountain access. Winters are fairly mild. We don't get extreme winters, it gets cold. We have all four seasons, so it gets cold, but we're not dealing with snow every single day, every single week, like you might get in Minnesota or Michigan or in the Northeast. And so you're not having to get out, shovel snow, shovel ice, any of that. You know, we might get a storm once or twice a year. Uh, it happens relatively quickly, it's not severe. So I think these mild winters are another benefit that attract people to this great state. I think Tennessee has, no matter where you go, has a really strong sense of community. We are we're all very proud of our state. We are we are uh love the the nature that it provides. Uh people are friendly, and you know, we're really, really uh have a strong sense of community. And I think a lot of people look for that, especially maybe retirees. So think about this when you're thinking about does it make sense? These might be some of the benefits, some of the things you're looking for when you consider moving to Tennessee. So let's talk about some hidden trade-offs that might catch you off guard. You hear all the rosy stuff on blogs and YouTube videos and podcasts about you know the great state of Tennessee. So let's talk about some of the hidden trade-offs that might not be talked about as much. So the first one is high sales tax, and this can add up quickly. Tennessee has one of the highest combined sales tax in the country, and this offsets some of the no state income tax that uh you might, well, not that you might see that that is true. There is no state income tax here, but again, that's offset a lot of times by higher sales tax. So the more you spend consumption, then the more the state is going to get tax revenue from that consumption. So the state sales tax rate is 7%, and then you can have local sales tax rates that typically range between two and three. So, all in, your sales tax could be nine to ten percent when you're purchasing you know goods and services in Tennessee that you may not be accustomed to. As an example, I live in Chattanooga. Uh sales tax here is around nine percent. You can go right across the border uh and go to the Costco. The Costco for Chattanooga is actually located right across the border in Georgia, and that, you know, because of that, sales tax is half of what it would be in if they located that Costco 500 feet up the road and place it in Tennessee. And so it's something to be cognizant of that when you retire here, uh sales tax is is higher. And so this applies to dining out, purchasing furniture, vehicle, everyday purchases that you make would cause you to spend maybe a little bit more in taxes through that sales tax. Um, so if you spend eighty to a hundred thousand dollars a year in retirement, that could be another eight to ten thousand dollars a year in annual sales tax. So you avoid the income tax, but you're still paying, it's just in a different way. And I think a lot of times people don't take that into consideration. Now let's talk about healthcare access. And and location matters a lot here. You've got some fantastic teaching hospitals here with Vanderbilt and UT Med Center, and they act they provide great access to healthcare, but there's a uh couple actually that you actually have St. Dude, St. Jude's Children's Hospital in Memphis. So I want to make sure I don't mention uh I don't forget to mention them. But it's also important that some of the uh healthcare access is location specific. So while some of these have great healthcare support systems, some places don't have uh as as good of options. So you want to consider that when you're moving into a location, especially as you retire, you're gonna want to be close to you know medical providers and healthcare access. So that's important when you're thinking through this. Knoxville has a strong hospital system, great specialist. Uh they have UT Med Center there, and so Knoxville is, in my opinion, uh really a gem of a city. It is a fantastic place to retire, has everything. Uh, and so uh you you can find great healthcore care resources there. Chattanooga has uh, I would say good health care uh access, but they're improving. Uh we're getting a lot of people flooding in to Chattanooga from around the country, especially those outdoor enthusiasts. And so uh the healthcare access that you're getting in Chattanooga is good and constantly improving as more people are moving in. Nashville with Vanderbilt uh has fantastic healthcare resources. Again, Memphis with St. Jude uh has good uh healthcare resources. So it's really, really important that you know that the bigger cities have this, the rural areas have limited access, longer drive times, maybe not as good a specialist. Um, maybe the hospital's not as great, or it takes longer to get to the hospital. So I don't think this should be a deal breaker for you, but it should be factored into where you choose to live should you decide to move to Tennessee. So let's talk about weather now. Um, Tennessee's weather is mixed. We we get all four seasons, mild winters. Um, the cons are summers are are usually pretty hot and humid. If you're not used to humidity, it can really kind of put some pressure on your chest. You you know, you're just you feel sticky and gross. And so it's it's reality is summers get hot and humid. We have significant storm risk. So especially in in kind of the spring season, I would say, uh, tornadoes are a big risk here. We we we've had them hit Nashville, Chattanooga, Knoxville, uh, Memphis. It seems like spring, uh, it seems like Tornado Alley, the old tornado alley out of you know Kansas, um Western Missouri, Oklahoma, all of that. Um I don't follow those specifically as much. Um but it feels like a lot of the tornado alley is shifted down into kind of Arkansas, Tennessee, Alabama, Mississippi. We're having increased weather risk that we weren't having, you know, 20 years ago, 30 years ago. And so it's something to really consider is that it is not uncommon for us to have some of these storms. And I'm not saying that these places get two, three, four tornadoes a year, but it is a heightened alert that you should be aware of as you make these decisions. And then allergies. Uh Knoxville, Tennessee, Chattanooga, Tennessee, East Tennessee, but but Tennessee in general, allergies can be really uh brutal. Uh, I struggle with these, I get allergy shots, um, my kids struggle with these. So if you don't have allergies now or mild allergies, you might want to just be prepared that allergies here can be really, really uh unbearable. And uh that totally depends on your allergy type, uh, how sensitive you are. For me, you know, my allergies last for six weeks in the spring when pollen kicks out. Um, and then after that, it's it's pretty much over. So, you know, just be thinking about that because the last thing you want to do is move here in the spring, settle down, you find the house, whatever, and then you end up hating it in the spring because excuse me, I meant the fall, but spring rolls around here and allergies are just miserable. So, you know, if you're moving from an Arizona or California where you don't have these seasonal type allergies, this could be a real adjustment uh for you. Growth and infrastructure. Um, this has caused Tennessee's popularity with people moving here, not just retirees, but but every everybody, all shapes uh and sizes across uh the country and lifestyles are moving here. And so this has caused some growing pains for some of these areas. Traffic congestion is increasing significantly, housing demand is pushing home prices up, um, infrastructure is taking a while to catch up. And so it's important to know that places like Nashville and Knoxville and Chattanooga, Memphis, you know, are having significantly increased congestion and traffic uh concerns that are making it um not it wouldn't prevent me from moving here, but I think you know it's definitely causing some some frustration for people that were thinking they were going to escape, you know, the traffic that maybe they experience in some of these more congested metro areas. Finally, what I want to kind of talk about is the the financial planning reality. And this is where I think some of the biggest mistakes happen. People move based on one factor. And again, like I started out in this video, it's usually taxes, and they and they don't look at the full picture. So I want to walk through kind of a simple example. Let's say a couple retires with a one and a half million dollar portfolio, they have sixty thousand dollars a year in Social Security, and they need$120,000 a year to live on. They moved to Tennessee thinking we'll save on taxes, and again, they probably will, but then they buy a more expensive home than they were anticipating. Uh, you know, might cost$700,000 versus$500,000 where they were. Again, another example uh here in Chattanooga, you can go right across the border into Georgia and get houses that are significantly cheaper than they would be on the Tennessee side, but you're picking up state income tax there. So, you know, again, these are things you wanna you wanna uh weigh out uh as you move to Tennessee to determine does it make sense? Um maybe they went out more, they travel more, they spend more, sales tax increased the cost of living, and so the net result means they're spending more, not less than they thought they would spend. You know, the the idea of spending less on taxes ends up uh through other channels causing them to spend more than they originally would. And so retirement isn't just about minimizing taxes, it's about everything, it's about spending, it's about uh aligning that spending with your lifestyle and your income strategy and your portfolio and uh how all of these things are woven together and play a part in your retirement plan. Tennessee can absolutely help and be a great place to retire to, but it's got to fit into your broader plan. So who is Tennessee best for? Tennessee tends to be a great fit if you want to reduce your overall tax uh liabilities, your tax drag. You value lifestyle, space, community, outdoors, nature, uhything outdoor living, and you want flexibility in your financial plan. It may not be the best fit for you if you want dense, walkable, urban living, uh, very close to everything within minutes, um, need elite health care within minutes, or prefer cooler, drier climates year around. At the end of the day, retiring to Tennessee isn't just about saving money, it's about creating a life you love. And the best Retirement plans don't just optimize numbers, they give you the confidence in the decisions you're making. If you're thinking about retiring to Tennessee and want to think through the financial side of it, that's exactly what we do at Paradigm Wealth Partners. You can schedule a conversation in the in the below description. There's a link directly to a booking page. You can also uh go to paradigmwealthpartners.com to learn more about what we do and how we help people. Thanks for watching. If you haven't already subscribed, please do so. Be confident in your retirement. Have a wonderful day. Thanks for joining me on another episode of What the Wealth. If you enjoyed the episode today, smash that subscribe button. It helps me more than you think. Also, if you found this episode insightful and a light bulb went off, share it. Your friend Aunt Judy, the random guy in the office who's always talking about investments, wealth isn't about just the chip chain. It's about our choices, chances, and changing our financial futures. The information in this podcast is informational and general in nature and does not take into consideration the listener's personal circumstances. This podcast is not intended to be a substitute for specific in financial, legal, or tax advice. You should consult the approved qualified professional prior to making a final decision. Securities offered through LPL Financial, member FINRA SIPC. Paradigm Wealth Partners is the other business name for Independent Advisor Alliance. Investment Advice offered through Independent Advisor Alliance, a registered investment advisor, Independent Advisor Alliance, and Paradigm Wealth Partners are separate entities for LPL Financial.