Retirement in Tennessee: Taxes and Cost of Living
Tennessee pairs no state income tax with a cost of living well below the national average, a combination that has made it one of the South's fastest-growing retirement states. Here is how your retirement income is taxed, what to watch on sales tax, and where retirees are putting down roots.
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Tennessee retirement tax rules
Tennessee has no state income tax, so your 401(k) withdrawals, IRA distributions, pension income, and Social Security benefits are not taxed at the state level (Tennessee Department of Revenue). The state once taxed interest and dividends through the Hall income tax, but that was fully repealed effective 2021, so investment income is now untaxed too. There is no estate tax and no inheritance tax.
Tennessee funds itself largely through sales tax. The combined state and local sales tax rate is among the highest in the country, often around 9.5%, and it applies to most purchases including groceries at a reduced rate. For a retiree, this is the key trade-off: you keep all of your retirement income, but you pay more at the register.
For most retirees drawing down savings, the math favors Tennessee. Sales tax scales with spending, not income, so it tends to cost less over a year than an income tax on substantial 401(k) and pension withdrawals would in a taxing state.
Cost of living in Tennessee
Tennessee's cost of living index is approximately 93, below the national average of 100 (MERIC). Housing is the main driver of that affordability, especially outside the Nashville metro.
Nashville's rapid growth has pushed its housing costs up toward and past the national average, and nearby Franklin is among the priciest addresses in the state. But Knoxville, Chattanooga, the Tri-Cities, and most of East Tennessee remain notably affordable. Combined with no income tax, a retiree who settles outside the Nashville area can stretch savings considerably further than the national norm, as long as the higher sales tax is built into the budget.
Does Tennessee tax retirement income?
No. With no state income tax, every major source of retirement income is untaxed at the state level. Here is how the four most common sources are treated.
| Income type | Taxed in Tennessee? | Details |
|---|---|---|
| 401(k) / IRA withdrawals | No | No state income tax. Still subject to federal income tax. |
| Pension income | No | Private and public pensions are not taxed by Tennessee. |
| Social Security benefits | No | Not taxed by Tennessee. May be federally taxable based on combined income. |
| Capital gains | No | No state capital gains tax. Federal rules still apply. |
Sales tax is the exception to the no-tax story. Use the retirement tax calculator to estimate the federal tax you'll still owe on withdrawals and benefits.
Best places to retire in Tennessee
Knoxville
Anchored by the University of Tennessee and close to the Great Smoky Mountains, Knoxville offers a below-average cost of living, strong healthcare, and easy access to outdoor recreation. It is a popular base for retirees who want city amenities and mountain access without Nashville prices.
Chattanooga
Set on the Tennessee River between mountain ridges, Chattanooga combines an affordable cost of living with a revitalized downtown, riverfront parks, and abundant outdoor recreation. Its scenery and walkability have made it a rising choice for active retirees.
Franklin
Just south of Nashville, Franklin offers a charming historic downtown, top-rated healthcare access through the Nashville metro, and an upscale suburban feel. It is one of the most expensive places in the state, so it suits retirees who prioritize amenities and proximity to a major city over rock-bottom costs.
Johnson City
In the Tri-Cities region of far East Tennessee, Johnson City offers some of the lowest costs in the state, a mild mountain climate, and healthcare anchored by East Tennessee State University's medical programs. It appeals to budget-conscious retirees who want a small-city pace near the mountains.
Maryville
Between Knoxville and the Smoky Mountains, Maryville is a smaller town that consistently ranks well for livability. It gives retirees an affordable, quieter setting with quick access to Knoxville's hospitals and amenities and the national park at its doorstep.
Tennessee pension system
The Tennessee Consolidated Retirement System (TCRS), administered by the Tennessee Department of Treasury, covers state employees, public school teachers, and many local government workers. It pays a defined-benefit pension based on years of service and salary. Employees hired more recently are typically enrolled in a hybrid plan that combines a smaller guaranteed pension with a defined-contribution account. Because Tennessee has no income tax, TCRS pension income is not taxed by the state.
If you have a pension, our pension calculator estimates your monthly benefit from years of service, and can compare a lump sum against monthly payments if your plan offers a choice.
Calculators for your Tennessee retirement
Retirement Tax Calculator
Estimate the federal tax on your withdrawals and Social Security, even where there's no state tax.
Retirement Income Calculator
See how long your savings last with Social Security, pension, and tax-aware withdrawals.
Social Security Calculator
Estimate your benefit at 62, 67, and 70, and compare break-even claiming ages.
Retirement Calculator
Project whether your savings will support the retirement you want, at any age.
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