Chattanooga Has Mountains, a Riverfront and No Tax on Wages. What It Takes to Retire There at 64 on $850,000
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Chattanooga’s Walnut Street Bridge crosses the Tennessee River, with the Tennessee Aquarium on the far bank and ridgelines in every direction. The aquarium is one of the world’s largest freshwater aquariums, and Atlanta is approximately two hours down I-75. Many couples end up imagining this place.
They want mountains and a real city without big-city prices, and Tennessee’s tax code is another factor in that choice. The question here is whether a couple retiring at 64, one year before Medicare, can pull it off on $850,000.
How Tennessee Taxes a Retired Couple
Tennessee doesn’t tax wages, and its old Hall tax on interest and dividends was fully repealed effective January 1, 2021, so Social Security, pensions, and IRA withdrawals don’t owe any state income tax. In the Tax Foundation’s index, Tennessee ranks 1 on individual income tax and 8 overall, but 47 on sales tax.
Sales tax is where the state makes up the difference. The Tennessee Department of Revenue sets the general state rate at 7%[1] and the state rate on food at 4%. Every local government adds its own rate on top, capped at 2.75%[1], so groceries are taxed too, just at a lower rate.
For homeowners, the state’s Property Tax Relief program has been around since 1973. It provides a partial reimbursement to homeowners 65 and older who meet an income limit. The program targets low-income seniors. A couple living off a portfolio this size would need to check eligibility with the county before building it into a budget.
Pricing the Budget and the Year Before Medicare
The Bureau of Labor Statistics places average household spending at $81,905 a year. Tennessee’s price level is 91.87 against a national benchmark of 100, and adjusting for that brings the working budget to about $75,200 a year. That figure assumes the couple owns their home outright, probably after selling somewhere else, but getting into the market costs a lot more than it used to. The FHFA price index for metro Chattanooga is up 51.51%[2] over five years, but only 1.92% over the past year.
Health insurance is the highest single cost before Medicare. Our earlier look at the Medicare gap at 64 found that unsubsidized marketplace coverage for two 64-year-olds runs about $1,800 to $2,400 a month. That works out to $21,600 to $28,800 for the year, and benchmark premiums are going up again for 2027, according to KFF. Keeping taxable income low can unlock subsidies. Once they turn 65, Part B costs $202.90[3] a month for each of them, and the income surcharge doesn’t start until joint income passes $218,000.
Running $850,000 Through a 4% Withdrawal
A 4% withdrawal from $850,000 is $34,000 a year. The SSA’s average benefit for an aged couple who are both collecting is $3,208 a month, or $38,496 a year. Put those together, and the couple has $72,496, which leaves them about $2,750 short of the budget. The SSA average mixes people who took it at many different ages. A couple who took at 64 will get smaller checks.
The first year is the hardest one. Say they hold off on Social Security and pay the high end of marketplace premiums. That year costs about $104,000, and it all comes out of savings, leaving roughly $746,000. To cover the gap after Medicare starts, they’d have to take about 4.9% of that balance each year. To stay at 4%, they’d need about $919,000 left once the bridge year is over.
Inflation adds further pressure to the budget over time. The BLS Consumer Price Index for Americans 62 and older rose 3.9%[4] over the past year, while the 2027 Social Security COLA is 3.6%. On top of that, the trustees project the combined trust funds will run dry in 2034[5], and after that they could pay 83% of scheduled benefits.
Sales Tax Is the Number to Watch
Three changes would narrow the gap in this plan. Part-time income during the bridge year would keep the portfolio closer to $850,000, and managing income to qualify for marketplace subsidies would lower the biggest bill in the first year.
And spending a few thousand dollars less per year would close the remaining gap, though without any of those, the plan runs on a draw close to 4.9%. With Social Security pushed to 65 or later, the target is about $919,000, or $850,000 plus enough work income to get through the first year.
Tennessee has no income tax, while sales tax applies to everyday spending. Each $10,000 of taxable spending carries $700 in state tax, plus up to $275 more in local tax. Each $10,000 of groceries adds $400 at the state food rate before the local rate is added. That cost scales with spending levels.
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David Beren has been a Flywheel Publishing contributor since 2022. Writing for 24/7 Wall St. since 2023, David loves to write about topics of all shapes and sizes. As a technology expert, David focuses heavily on consumer electronics brands, automobiles, and general technology. He has previously written for LifeWire, formerly About.com. As a part-time freelance writer, David’s “day job” has been working on and leading social media for multiple Fortune 100 brands. David loves the flexibility of this field and its ability to reach customers exactly where they like to spend their time. Additionally, David previously published his own blog, TmoNews.com, which reached 3 million readers in its first year. In addition to freelance and social media work, David loves to spend time with his family and children and relive the glory days of video game consoles by playing any retro game console he can get his hands on.
