Alabama vs. Tennessee for Retirement (2021)

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Alabama and Tennessee are two states with much to offer retirees. Those thinking about retiring to one of these two states probably have many questions regarding tax rates, cost of living, and recreation. Both states have their pros and cons.

Between Alabama and Tennessee, Tennessee is the better state for retirement. While both states offer no income tax on pensions and social security, Tennessee boasts a lower cost of living, lower general tax rates, and more activities for retirees.

In this article, we’ll compare Alabama and Tennessee to determine which is a better state for retirement. We’ll take a look at taxes, activities, and other benefits to retiring in each state, as well as the downsides. Read on to learn more.

Is Alabama Good for Retirement?

Alabama is considered a good state for retirees thanks to its cost of living. Residents don’t pay income tax or estate tax once they earn $17,500. The state offers plenty of activities for retirees including fishing, golfing, and parks. However, Alabama is ranked low for healthcare access.

Let’s take a more in-depth look at the benefits (and downsides) of living in Alabama.

Alabama’s Tax Rates

Alabama has an average sales tax rate of approximately four percent. However, the state has one of the highest average local sales tax rates in the country — roughly 5.22 percent. That creates a combined sales tax rate of around nine percent. This could make shopping more expensive for retirees who enjoy making regular shopping purchases.

On the plus side, Alabama won’t tax your pension income if it comes from a defined benefit retirement plan. Military retirement pay and a long list of government pensions are also exempt from taxation. Social Security payments are also not taxed in Alabama.

Another attractive factor is that property tax in Alabama is one of the lowest in the nation. It is split by both Alabama and local governments. The county rate can range from 0.33 percent up to around 0.95 percent.

The average effective real estate property tax rate in Alabama is about 0.96 percent. However, this varies greatly based on location and type of property being taxed – commercial, industrial, and rental properties are all taxed at a higher rate.

Alabama Has a Lower Cost of Living Compared to the Other States

Despite the higher-than-average tax rates, the cost of living in Alabama is six to seven percent lower than the national average. The low cost of living makes Alabama one of the best places to retire.

To afford average rent prices in Alabama without exceeding 30 percent of your annual income, you’d need to make around $39,320 annually — $3,326 per month. Compared to the United States as a whole, the “comfortable” salary in Alabama is low and ranks 48th.

Alabama Is Ranked Low for Access to Healthcare

Unfortunately, Alabama is ranked 38th out of the 50 states when it comes to overall healthcare access and affordability. Healthcare expenses are a considerable component of living costs. If you move to another state, whether you can pay for healthcare and the ability to obtain it are two key indicators of how much you will pay for this crucial resource.

Affordability is often determined by a state’s insurance rates and out-of-pocket expenditures that must be paid while receiving treatment.

If rates or out-of-pocket expenses are high, your cost of living will rise. How simple or difficult it is to receive healthcare is measured by access.

Barriers such as the inability to get insurance coverage, having to travel long distances to health care centers, and a shortage of adequate facilities and/or medical professionals are all examples of access barriers.

Renting May Be a Better Option for Retirement in Alabama

Housing is the most significant element in any cost of living estimate, especially for retirees. In Alabama, renting a home may be equivalent to purchasing one, yet it may still be the better option for you. Renting typically has less up-front expenditure.

If yard maintenance is something that makes you cringe, renting might be a better alternative for retirees. Yard work and other maintenance are typically taken care of by the landlord. This can save a lot of money in the long run.

In addition, utilities are usually included as part of the rent and can help reduce your energy bill.

Rental properties may also provide facilities such as a:

Fitness center
Pool
Children’s play area
Tennis courts

These would be generally inaccessible if you were to purchase a house. Including those expenses into your rent might enable you to have more disposable money and a lower cost of living.

Renting can help you get out and experience a new area before committing to buying a house.

Alabama Has a Wide Variety of Activities for Retired People

There are many activities nearby in Alabama, including nature parks, theaters, museums, art galleries, bowling alleys, and live entertainment.

There are many golf courses and living communities in Alabama, such as:

Alabama is also close to the Gulf of Mexico, providing residents with many other activities such as boating, fishing, hiking trails, hunting, and biking.

In addition, Alabama boasts the National Geographic Theater, bus tours of the Marshall Flight Center, and hundreds of eateries throughout the state.

The Downsides to Retiring in Alabama

The weather in Alabama can change rapidly and unpredictably. Alabama is no stranger to tornadoes, hurricanes, and other inclement weather. It’s important that residents have an emergency plan when living in the state.

In 1969, the state was hit by Hurricane Camille — a category five. Waves crashed ashore at over ten feet tall, thanks to the storm surge. And despite being decades ago, this storm is still the talk of the state. Alabama has been hit by multiple significant storms since.

The average weather temperature in Alabama is 64 degrees Fahrenheit (17.77°C).

In addition to unpredictable weather, Alabama is ranked low for healthcare access and education.

Residents also report that the wages are low, while sales taxes are high in many areas.

Is Tennessee Good for Retirement?

Tennessee is an attractive state to retire, due to its cost of living, state income tax, healthcare, and recreation. There are hundreds of activities for retirees, from fishing and boating to historical sites and museums. However, Tennessee has a high crime rate compared to other states.

Let’s dive into the upsides and downsides of retiring in Tennessee.

Tennessee’s Tax Rates

In Tennessee, the overall tax burden is much lower than that of Alabama.

There is no state income tax, which means compensation is free of additional taxes other than federal income taxes. With that said, Tennessee does have a seven percent sales tax across the state.

Income tax rates in Tennessee only apply to interest and dividends. As a result, Tennessee residents do not pay income tax on their 401(k), IRA, or pension earnings. Tennessee retirees also receive Social Security payments without paying state tax on them.

Tennessee Has an Even Lower Cost of Living Than Alabama

A report from Bankrate claims that Tennessee is ranked as the third best place to retire in America, thanks to its cost of living.

The cost of living in Tennessee is around nine to ten percent lower than the national average. When compared to Alabama, “The Volunteer State” has a cost of living around one to two percent lower.

For comparison, Alabama’s median household income is around $46,000 annually, whereas Tennessee’s is roughly $48,000. It’s clear that living in Alabama requires less money.

Home Buying Is Ideal in Tennessee for Retirement

Renting is more cost-friendly in Alabama than in Tennessee. In Tennessee, housing costs are reasonable. As a result, retirees benefit from owning their own homes versus renting.

If you’re looking to buy a house in Tennessee, you’ll notice that home prices are generally less than the median when compared to most residential real estate markets across the country.

Purchasing a house is a time-consuming and complicated process. Besides the down payment, which is usually fifteen to twenty percent of the selling price, there will be closing expenses. Fortunately, in Tennessee, you’re likely to pay less overall.

Alabama homeowners, however, spend an average of $18,000 on closing costs. In addition, home prices in Alabama are higher than in Tennessee. With that said, home buying in Tennessee can be a more cost-effective and financially rewarding process.

Tennessee Ranks Higher Than Alabama for Healthcare Access

Overall, healthcare access and affordability in Tennessee are ranked 36th out of the 50 states. While Tennessee doesn’t rank in the top ten or even top twenty, it still ranks higher than Alabama.

With that said, Tennessee offers some reasonable rankings for quality healthcare in America. Access, in general, may not be the best, but residents are at least getting high standards of care. Retirees may also be pleased to know that the state ranks 24th out of 50 for its Medicaid coverage rate.

In terms of healthcare costs, Tennessee costs roughly $18,142 per stay. Alabama is slightly higher, with $18,473 per stay.

For those looking to retire in a state with better healthcare access, affordability, quality, and Medicaid coverage, Tennessee is the clear winner.

There Are More Activities for Retired People in Tennessee

There are hundreds of places to visit, things to see, and so many ways to enjoy life in Tennessee. It is a great place for retirement because there are also options for senior living, such as senior apartments or independent living communities if your health starts deteriorating.

Alabama, on the other hand, offers fewer recreational activities than Tennessee. Alabama ranked 42nd in terms of the number of attractions (such as historical sites) per 100,000 residents and 39th in terms of access to arts and culture like plays and museums.

In Tennessee, you can visit Lookout Mountain, Gatlinburg, and take a ride on the trolley, drive through the majestic Cades Cove, enjoy a show at the Grand Ole Opry, or check out the Memphis Zoo.

The Smoky Mountains offer plenty of recreational activities including driving the Foothills Parkway, touring the mountains themselves, picnicking, mini-golf, and regular golf. For seniors with disabilities, there are dozens of hotels that offer handicap accessibility in Pigeon Forge.

The Downsides to Retiring in Tennessee

Tennessee offers much to retirees, but one major downside is the crime rate. Residents in Tennessee have a 1 in 168 chance of becoming a victim of a violent crime, compared to 1 in 196 in Alabama. In addition, Tennessee’s crime rate has a ranking of 5.95, compared to 4, which is the national median.

With that said, there are many safe areas for retirees to live in Tennessee. A few of the cities that are known for their low crime rates include Knoxville, Chattanooga, and Kingsport-Bristol, which had only about two hundred crimes per one hundred thousand people in 2016, according to the city rating website.

Like Alabama, Tennessee also has its fair share of inclement weather. Its location in the United States means that it receives cold air from the north and warm weather from the south — this can cause severe thunderstorms, tornadoes, flooding, and, in the winter, strong snowstorms.

The average temperature in Tennessee is 58°F (14.44°C), making it significantly cooler than in Alabama.

Alabama vs. Tennessee: Which State Is Better Suited for Retirees?

Tennessee is better suited for retirees. The state boasts a lower cost of living, better access to healthcare, and more recreational activities. Alabama offers a lower crime rate and warmer weather. Both states have their pros and cons, but Tennessee seems to win out overall.

Active retirees who enjoy history, nature, entertainment, and a versatile climate will enjoy what Tennessee has to offer. There are museums, historical sites, caves, natural parks, sports events, and live entertainment. Country music fans will love being able to visit the Grand Ole Opry.

The fact that Tennessee experiences four seasons makes it the ideal place for those who prefer all types of weather.

For those looking for a warmer climate along with recreational activities, Alabama wins out. Tennessee’s temperatures are lower, on average, when compared to the Cotton State. And while Alabama has less to do for retirees, the state still has plenty to offer to keep you busy and active. With that said, the cost of living in Alabama may be restrictive for some seniors.

What Are the Best Places In Alabama for Retirement?

Despite its higher cost of living, there are many places in Alabama suitable for retirement — especially if you want to live in an area without much snow. Keep in mind, however, that the Cotton State experiences high humidity levels during most months. In the summer, heat indexes can soar above 100 degrees Fahrenheit (37.77 Celsius).

For lower tax rates and housing costs, you’ll want to look to different areas of the state.

The best places in Alabama for retirement include Bullock County, Clay County, Conecuh County, and Washington County. This is based on tax rates throughout the counties. For low housing costs, it’s best to look in cities like Birmingham and Mobile.

What Are the Best Places in Tennessee for Retirement?

Specific areas of Tennessee that are best to retire in include Chattanooga, Knoxville, and Nashville. Chattanooga has a low cost of living and excellent medical facilities. Knoxville boasts affordable housing costs. Nashville offers plenty of recreational activities for retirees.

The cities with the lowest cost of living include:

Johnson City
Kingsport-Bristol
Chattanooga

While Nashville offers a lot of recreational opportunities, it has one of the highest costs — so that’s certainly something to consider. If your retirement budget isn’t too high, consider somewhere else to live, such as Cookeville or Knoxville, which have lower costs.

What States Do Not Tax Retirement and Social Security?

The states that do not tax retirement and social security include:

Alabama

Alaska

Florida

Illinois

Mississippi

Nevada

New Hampshire

Pennsylvania

These states are all exempt from both pension and Social Security taxes because of their constitutional provision.

Which State Is the Most Tax-Friendly for Retirees?

Retirees looking to relocate often consider several factors before settling on a location. Tax-friendliness is often of utmost importance. Unfortunately, neither Alabama nor Tennessee fall into the top ten most tax-friendly states.

Delaware is the most tax-friendly state for retirees. By living in the Blue Hen state, you may reduce your taxable income in any year to zero percent. Tennessee comes in at number 10, and like Alabama—which didn’t make the list—offers no tax on retirement income, Social Security, or pensions.

Conclusion

Both Tennessee and Alabama have their advantages.

If you’re looking specifically for warm weather, a coastal state, and lower crime rates, then Alabama is likely the way to go. However, if you’re looking for an active retirement filled with museums, sports events, live entertainment, and national parks, Tennessee may be a better fit. In addition, many retirees choose Tennessee because of its lower cost of living and better access to healthcare.

Think about what matters most in your retirement before deciding which state will best suit your needs.

Alabama vs. Tennessee for Retirement