Everyone’s Chasing Florida’s Gulf Coast. Smart Retirees Are Quietly Buying Here Instead

Everyone is flocking to Florida's Gulf Coast, with retirees and smart investors alike drawn to its allure. However, a closer look reveals that Tennessee may be a more attractive alternative for retirees seeking to maintain their retirement plans. In Tennessee, retirees enjoy no state income tax on retirement income, including Social Security, pensions, and dividends.

This contrasts with Florida, which now taxes all retirement income due to the state's income-tax advantage disappearing due to factors such as coastal flood insurance surges and post-Surfside condo assessments.

Florida's insurance and assessment costs have significantly increased, with homeowners insurance becoming pricier and more difficult to secure due to wind mitigation inspections and roof age limits. Flood insurance has also changed with the NFIP's Risk Rating 2.0, resulting in higher premiums for older policies. Condo owners in Florida face additional challenges with stricter structural inspection and reserve funding requirements that have led to special assessments on older buildings, factors that most retirees hadn't considered in the past.

Despite these challenges, Florida still offers a tax-efficient environment for retirees, with a homestead exemption, Save Our Homes cap, and no state income tax on retirement withdrawals. However, once you factor in insurance and assessments, the state tax advantage is quickly eroded. On the other hand, Tennessee offers no state income tax on retirement income, with a cost of living index of 91.87 that is significantly lower than Florida's 103.414.

Knoxville, Tennessee, is one such alternative that provides retirees with a more stable retirement plan. Knoxville has no state income tax, a lower cost of living index, and does not face hurricane wind exposure. Additionally, Knox County offers a property tax freeze for qualifying senior homeowners, which is not directly mirrored in Florida. Healthcare is also a significant advantage in Knoxville, with access to a Level I trauma center and academic teaching hospital, as well as a full network of Covenant Health.

To sustain a $75,000 annual budget in Knoxville, a portfolio ranging from $800,000 to $1.1 million is needed, using a conservative 4% withdrawal rate. This portfolio should be diversified, consisting of a treasury ladder for near-term spending and broad index and dividend ETFs for the long tail. When comparing Knoxville to a Gulf Coast barrier island, the insurance and assessment overlay significantly increases the required portfolio size before any storm hits.

Ultimately, the question remains whether the insurance and assessment lines a decade out will still allow retirees to maintain their budget in the Gulf Coast area. In contrast, Knoxville offers a fixed-cost base that does not compound against the plan at every renewal, making it an attractive alternative for retirees seeking financial stability in retirement.