Zero State Income Tax and $800,000: Here’s How to Retire to Tennessee at 62

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An $800,000 portfolio can make retirement at 62 realistic in Tennessee, but not everywhere in Tennessee and not with every housing setup. The state’s lack of income tax helps, especially for IRA withdrawals and Roth conversions, but Tennessee gives some of that advantage back through high sales taxes. The plan works best with a paid-off home outside the Nashville metro, a controlled healthcare bridge to Medicare, and withdrawals that stay low enough to protect the portfolio for a 30-plus-year retirement.

What Tennessee Actually Costs at 62

Start with where you live. MERIC’s first-quarter 2026 cost-of-living index put Tennessee at 88.9 against a national baseline of 100, ranking it ninth-lowest among the states. That average hides an enormous spread. Nashville and its inner ring are no longer cheap retirement markets, while Knoxville, Chattanooga, the Tri-Cities, and Clarksville still offer more traditional Tennessee pricing. A paid-off or nearly paid-off home is what makes this scenario work. If you are financing a Nashville-area purchase at 62, the math can collapse quickly.

Assume you own a modest home outright in the Knoxville or Chattanooga metros. A realistic annual budget for a single retiree might include $9,000 for property taxes, insurance, and maintenance; $4,000 for utilities and connectivity; $5,500 for food; $5,000 for transportation and replacement-vehicle reserves; $8,000 for ACA premiums and out-of-pocket healthcare before Medicare at 65; and $8,500 for travel, gifts, personal spending, and emergency reserves. That lands near $40,000 a year.

For a couple, add roughly $12,000 to $15,000 for the second person’s food, healthcare bridge, and incremental spending. National average consumer-unit spending was $78,535 in 2024, so $40,000 for one person in East Tennessee is tight but achievable if the house is paid off and healthcare subsidies are managed carefully.

The Math on $800,000 and Social Security at 62

Social Security determines whether $800,000 is enough. For people whose full retirement age is 67, claiming at 62 can reduce the monthly benefit by 30%. A middle-earnings worker might land around $1,400 to $1,600 a month, or about $18,000 a year, but the real planning number should come from the worker’s own SSA estimate. The 2.8% COLA applies to 2026 benefits; future COLAs will depend on inflation.

Subtract $18,000 from a $40,000 budget and the portfolio must provide about $22,000 a year. On $800,000, that is a 2.75% initial withdrawal rate. That is below a 3.25% to 3.5% planning range for a long retirement starting at 62. At 3.5%, $800,000 supports $28,000 a year before taxes, leaving some cushion for roof repairs, car replacement, or higher healthcare costs.

For a couple with two Social Security checks, the numbers can get easier, especially if both benefits are already active and the home is paid off. For a single person, the margin is real but thin. It can evaporate if you buy in the Nashville area, carry a mortgage, lose ACA subsidies, or need expensive care before Medicare begins.

The Zero-Income-Tax Trick Most People Miss

Tennessee’s headline appeal is no state tax on wages, investment income, IRA withdrawals, 401(k) withdrawals, pensions, or Social Security. That is real: Tennessee’s Hall income tax on interest and dividends was repealed for tax years beginning January 1, 2021, or later. But Tennessee funds itself heavily through sales taxes. The state rate is 7% on most taxable goods and services, the food rate is 4%, and local sales taxes can add up to 2.75%.

That means Tennessee can still tax retirees at the cash register. Tax Foundation data put Tennessee’s average combined state and local sales tax rate at 9.61% in 2026, among the highest in the country. Every $30,000 of taxable spending can mean roughly $2,900 in sales tax, depending on the mix of groceries, services, and local rates. The tax trade-off is still favorable for many retirees, but it is not free.

The ACA Bridge Is Where Tax Planning Matters

The real planning prize is the three-year ACA bridge from 62 to 65, but the mechanics need to be stated carefully. Marketplace premium tax credits are based on federal modified adjusted gross income, not state taxable income. Tennessee’s lack of income tax does not directly change ACA MAGI. What it does change is the after-tax cost of the planning moves used to manage MAGI: Roth conversions, taxable-account sales, and IRA withdrawals do not trigger a separate Tennessee income tax bill.

That flexibility matters. A 62-year-old can use taxable-account basis, cash reserves, partial Roth conversions, and carefully sized IRA withdrawals to keep federal MAGI aligned with ACA subsidy targets. The value can be meaningful, but it should not be promised as a fixed $10,000 to $20,000 benefit. The actual savings depend on household size, county-level premiums, income, subsidy rules, and how much of the $800,000 sits in traditional retirement accounts versus taxable or Roth accounts.

What Makes 62 Work

The number that makes this scenario work is $800,000 invested in a diversified mix of broad index funds and a short Treasury or cash ladder, drawn at roughly 3.25% to 3.5% a year. Pair that with Social Security claimed at 62, a paid-off home outside the Nashville metro, and deliberate federal MAGI management during the ACA bridge years. Miss any of those four legs and Tennessee’s tax friendliness will not rescue the math. Get them right, and retiring at 62 becomes a realistic option rather than a tax-driven guess.

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