Tennessee is emerging as one of the most attractive states for retirees, largely due to a combination of tax advantages, relatively low living costs, and access to health care.
The shift has accelerated in recent years, particularly after the state eliminated its last remaining tax on investment income, Dave Hall, CPA/PFS, founder of Retirement Risk Advisors, said in a recent interview.
For households evaluating where to spend their retirement years, the financial implications can be significant, said Hall, who is also a member of the American Institute of CPAs (AICPA) PFP Champions task force.
Below is a transcript of that interview with Hall, edited for clarity and brevity.
Why taxes matter in retirement
Robert Powell: For retirees, the state you call home can have a significant impact on your retirement nest egg due to variations in tax policies. Tennessee is increasingly becoming a top choice, not just for its scenic beauty and culture, but also for its favorable tax environment and relatively affordable housing.
Here to discuss that is Dave Hall, CPA, PFS, founder of Retirement Risk Advisors and a member of the American Institute of CPAs’ PFP Champions Task Force.
Dave, welcome.
Dave Hall: Thank you very much, Robert. Glad to be with you.
Zero income tax across the board
Robert Powell: When I think about Tennessee, there are at least four major tax advantages. Walk us through them.
Dave Hall: There really are. Tennessee became attractive to me after practicing in Nevada and working with clients in Wyoming. When I was deciding where to move back to the mainland U.S., Tennessee stood out for its tax benefits.
The biggest one is zero income tax, especially for retirees. That includes Social Security and distributions from retirement accounts. There’s nothing you report at the state level. You file your federal return, and that’s it.
Robert Powell: So that includes wages, Social Security, pensions, 401(k) withdrawals, and IRA distributions?
Dave Hall: Yes, all of that. And it also includes interest and dividends. Tennessee used to have the Hall income tax on those, but that was fully repealed in January 2021. That was the final step in becoming a true no-income-tax state.
No tax on investments or capital gains
Robert Powell: What about capital gains?
Dave Hall: There’s no capital gains tax either. You don’t even file a state income tax return anymore. Like Nevada or Wyoming, you keep everything after federal taxes.
Property taxes remain relatively low
Robert Powell: What about property taxes?
Dave Hall: Typically, when a state doesn’t have income tax, it makes up for it with higher property taxes. Tennessee is different. Property taxes are below the national average.
Housing is still relatively affordable across much of the state, although areas like Nashville and Franklin have seen price increases due to population growth.
Some municipalities may have higher rates, often tied to school funding. For example, where I live in Collierville, we pay more to support local schools.
Property tax relief for seniors
Robert Powell: Do they offer relief programs for older homeowners?
Dave Hall: Yes. Tennessee has programs that help seniors, particularly those with income constraints. In some cases, property taxes can be capped or reduced to prevent people from being priced out of their homes.
No estate or inheritance tax
Robert Powell: Another advantage is the lack of estate tax.
Dave Hall: That’s right. Tennessee has neither an estate tax nor an inheritance tax. Some states impose one or the other, but Tennessee does neither.
So if someone is subject to federal estate tax, that’s the only tax they’ll pay. The state does not impose additional taxes on wealth transfers.
Sales tax is the tradeoff
Robert Powell: What taxes should people be aware of?
Dave Hall: Sales tax is where Tennessee generates revenue. It averages about 9.61%, which is relatively high.
That said, there are offsets. Prescription drugs are not taxed. Food is taxed at a lower rate, and there have been efforts to reduce or eliminate that tax at the state level.
Health care and long-term care considerations
Robert Powell: What should retirees know about health care?
Dave Hall: Tennessee has strong health care systems, especially for pediatric care, with institutions like St. Jude and Vanderbilt.
For retirees, long-term care is more affordable compared with high-cost states and cities like New York, California, Chicago or Boston. Based on national comparisons, Tennessee is among the lower-cost states for long-term care services.
Opportunities for retirees who keep working
Robert Powell: What about retirees who start businesses?
Dave Hall: It’s relatively easy to start a business here. If you generate income, you won’t pay state income tax on it. There are some business-related taxes, such as excise and net worth taxes, but they are generally modest.
Lower taxes can stretch retirement savings
Robert Powell: The combination of low taxes and cost of living can stretch retirement dollars.
Dave Hall: Exactly. Even a 5% or 6% state tax adds up over time. Over 20 or 30 years, that can mean six-figure differences in what you keep.
Why professional advice matters
Robert Powell: It sounds like working with a financial adviser is essential.
Dave Hall: Absolutely. Retirement decisions involve taxes, investments, health care and legacy planning.
There are also irreversible decisions, such as when to claim Social Security or how to structure Medicare coverage. Once those choices are made, they’re difficult or impossible to undo.
A comprehensive plan helps people avoid costly mistakes and align their decisions with long-term goals.
Managing risk in retirement
Robert Powell: Retirement is about managing risk, not just accumulating assets.
Dave Hall: That’s right. During your working years, you’re focused on saving. In retirement, you’re managing risks such as taxes, inflation, withdrawal strategies and long-term care.
You move from being a buyer of assets to a seller, and that requires a different mindset and strategy.