If you (and/or your spouse) are eligible for Social Security benefits in retirement, you may be counting on a specific dollar amount to put towards the items and services that you’ll have to purchase.
But, did you know that you may not be able to spend the whole amount of this income?
Many people are shocked to learn that Social Security income could be taxable. So, before you dive into retirement, it is important to know if your benefits will be taxed, and if so, to put a plan in place to help you fill in this income “gap.”
Is Your Social Security Taxable?
The amount of benefits you generate from Social Security will depend on several factors. These include your pre-retirement earnings, as well as your age when you claim this income. Eligible recipients can opt to start Social Security as early as age 62. But if you file before your “full retirement age,” the dollar amount of your income from Social Security will be reduced.Social Security Full Retirement Age
| Year of Birth | Minimum Retirement Age for Full Benefits |
|---|---|
| 1937 or Before | 65 |
| 1938 | 65 + 2 months |
| 1939 | 65 + 4 months |
| 1940 | 65 + 6 months |
| 1941 | 65 + 8 months |
| 1942 | 65 + 10 months |
| 1943 to 1954 | 66 |
| 1955 | 66 + 2 months |
| 1956 | 66 + 4 months |
| 1957 | 66 + 6 months |
| 1958 | 66 + 8 months |
| 1959 | 66 + 10 months |
| 1960 or Later | 67 |
Source: Social Security Administration
In some cases, Social Security retirement benefits may be taxable. This is true if you are receiving Social Security before your full retirement age, and you are also receiving income from various other sources such as wages, self-employment income, interest and/or dividends. For instance, you may be taxed on Social Security if: 1) You file a federal tax return as an individual and your combined income is:- Between $25,000 and $34,000 (up to 50% of your benefits may be taxable)
- More than $34,000 (up to 85% of your benefits may be taxable)
- Between $32,000 and $44,000 (up to 50% of your benefits may be taxable)
- More than $44,000 (up to 85% of your benefits may be taxable)
Strategies for Increasing Incoming Cash Flow in Retirement
The good news is that there are some strategies that could be used to reduce or eliminate taxation of Social Security benefits. For instance, taking withdrawals from a tax-free Roth IRA can help. That is because funds that are accessed from a Roth account are not considered to be taxable, and therefore, will not be counted towards your combined income. Likewise, taking tax-free loans from a permanent (i.e., cash value) life insurance policy will also not increase your combined income, and in turn, won’t raise the total that counts towards taxation of Social Security. If you do have an income “gap” that you need to fill, an annuity could provide you with a solution. These financial vehicles are designed for paying out a set amount of cash flow for a set time frame – such as 10 or 20 years – or even for the remainder of your lifetime. But not all annuities are exactly the same. So, it is vital that you first discuss your objectives and specific situation with a retirement income specialist who can assist you with narrowing down the best options. If you don’t have a stable retirement income plan in place, it is never too early to start building one. That’s what the experts at Annuity Gator can do for you. Our primary mission is helping people lock in one or more reliable streams of cash flow that continue for the long term. Would you like to set up an “income floor” so that you can concentrate on other important aspects of retirement – like relaxing and spending time with loved ones? Contact Annuity Gator today and set up a time to chat. You can reach us directly by calling (888) 440-2468, or via email by sending us a message through our secure online contact form. We look forward to helping you.
