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Why Social Security Taxation is Important to your Retirement


Social Security Taxation and your Retirement 

Will your social security benefits be taxed in retirement?

In our experience most retirees can't answer this crucial retirement planning question. Why is it crucial? Well, if saving for retirement is all about your savings rate, retirement itself is all about net, after-tax cash flow and the sustainability of that cash flow. Taxes are a crucial part of that equation, which is why we help our clients lower their lifetime tax bill so they can keep, and use, more of what they have. 

How is Social Security Taxed? 

Social security will be taxed at your ordinary income tax rates. In other words, social security isn't taxed at an advantaged rate. Howeverdepending on the amount of your other taxable income, not all of your social security benefits will be taxed. 

3 Taxation Buckets for social security: 

There are three key taxation buckets to remember for social security benefits. Depending 

  • 0% of your benefits will be taxable
  • 50% of your benefits will be taxable
  • 85% of your benefits will be taxable
Threshold Single Married Filing Jointly
50% of benefits taxable $25,000-$34,000 $32,000-$44,000
85% of benefits taxable $34,000+ $44,000+

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Why Social Security Taxation Matters 

Social security taxation matters because most retirees want to maximize their after-tax income. However, it's also crucial from a tax planning perspective. Things that could affect your social security taxation: 

  • Investment income and capital gains 
  • Roth Conversions
  • Required Minimum Distributions (RMDs) 
  • Business Income
  • Employment Income 
  • etc. 

We believe its crucial that retirees have a written financial plan that takes taxes into account. Social security taxation is just one of the items that should be considered in any quality retirement plan.  

Interested in learning more or getting a second opinion on your retirement plan? Schedule a free introductory call with a member of our team today:

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