Every few months, somebody brings up Tennessee as the obvious retirement move. No state income tax, mild winters, Nashville has a fun scene, and the mountains are nice to look at. It has become the default answer for anyone trying to stretch a retirement portfolio. But here is the question nobody seems to ask.
Does that headline benefit actually move the needle? For a retiree living on Social Security and modest IRA withdrawals, the state income tax savings might only add up to a few hundred dollars a year. Tennessee’s bills, on the other hand, come due every single month, regardless of how the portfolio is performing. This piece is for readers stress-testing that plan and considering an alternative most retirement checklists never mention.
Where the Tennessee Math Actually Breaks
Tennessee’s combined state and local sales tax is roughly 9.55%, near the top nationally. The state taxes groceries at a reduced rate that local jurisdictions layer on top. The Tax Foundation’s 2025 index ranks Tennessee’s sales tax component at 47 out of 50, while ranking its individual income tax at 1. That trade works for a six-figure household. For a retiree with trivial income tax, it’s a bad trade. Sales tax hits every gallon of milk, every water heater, every restaurant tab.
If you’ve saved over $1,000,000, this guide is for you. The last thing you want in retirement is to run out of money, you want your money to generate lasting income while you enjoy your life.
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Then there is the insurance problem to contend with. Middle and West Tennessee sit right in the middle of one of the most active severe convective storm corridors in the country. Homeowners’ premiums in Nashville, Clarksville, and Jackson have climbed sharply, and underwriting around roof age has tightened noticeably. On a paid-off house, insurance is now a meaningful expense. Add Tennessee’s property tax rank of 33, and the state is collecting its revenue through channels that a fixed-income retiree simply cannot avoid.
Home prices finished off the argument. Nashville, Knoxville, and Chattanooga absorbed a full decade of in-migration. The national Case-Shiller index hit 336.7 in June 2026, which is its highest reading in the supplied series, and Tennessee metros ran ahead of that curve. So the retiree arriving in 2026 is buying at the top of a cycle.
Why Bowling Green, Kentucky Is the Quiet Answer
Cross into Kentucky on I-65, and the arithmetic changes. Kentucky’s cost-of-living index sits at 90.16, slightly below Tennessee’s 91.87. Kentucky exempts Social Security in full and shields retirement income through its pension exclusion. A retiree drawing Social Security plus a modest traditional IRA distribution often owes little or no Kentucky income tax. The Tax Foundation ranks Kentucky’s sales tax component at 18, and the state doesn’t tax most groceries. Bowling Green sits an hour from Nashville, offers a regional medical center, university-town amenities, and housing not repriced by the Tennessee migration wave.
There is a real trade-off here. Kentucky’s overall tax burden comes in at $6,649 per capita, which is higher than Tennessee’s $5,333. That gap matters if you are a high-income household. But for a retiree spending around the national average of $78,535, the sales tax and insurance savings in Kentucky end up closing that gap. Bowling Green comes out ahead.
Portfolio Math That Makes Bowling Green Work
Assume a couple retiring at 65 in Bowling Green targeting $70,000 annually in current dollars:
Housing runs roughly $18,000 all-in on a paid-off modest home, including property tax and Kentucky’s forgiving insurance market. Healthcare, with both on Medicare, runs about $14,000, anchored by the $202.90 monthly Part B premium per person, a Medigap plan, Part D, dental, and out-of-pocket. Food and utilities land near $15,000. Transportation, including vehicle replacement reserves, is $8,000. Miscellaneous, home maintenance, gifts, travel, and federal taxes on IRA withdrawals absorb the remaining $15,000.
Combined Social Security at a realistic claiming age covers roughly $48,000, leaving a $22,000 gap. Divide by a 4% withdrawal rate, and the portfolio target is $550,000 (we made the full case for why that 4% figure wobbles in today’s market, and what to run instead, in a free guide here). Add a $50,000 reserve for the first roof and vehicle replacement, and the number rounds to $600,000. The 2027 COLA tracking at 3.1% helps Social Security keep pace with the grocery bill, which Tennessee’s sales tax was quietly inflating.
Kentucky’s retirement income exclusion is claimed per person, per year. For a couple, that structure lets a household shape traditional IRA withdrawals to stay under the combined exclusion threshold and pay effectively no Kentucky income tax on retirement income, while Social Security is exempt outright. Tennessee’s retirees pay the country’s highest combined sales tax on every dollar spent to live. The retiree escaping income tax by choosing Tennessee was escaping a tax they wouldn’t owe and accepting a tax they could not avoid. Bowling Green reverses that trade. A $600,000 portfolio, a paid-off house, both Social Security checks, and roughly a 4% withdrawal rate get it done. The money left over at month’s end is the point.
A $1,000,000 Income Portfolio
If you’ve saved over $1,000,000, this guide is for you. The last thing you want in retirement is to run out of money, you want your money to generate lasting income while you enjoy your life.
Now you can learn the strategies wealthy retirees use to fund their retirement with The Definitive Guide to Retirement Income from Fisher Investments. Download the guide today! (sponsor)
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