What Other Income Sources Will You Have During Retirement
The availability of income from other sources, such as savings, pensions, mutual funds, or annuities, can affect someones claiming strategy, too. People with sufficient income from other sources to cover retirement expenses immediately might prefer to delay claiming Social Security until later in retirement.
What Debt Ceiling Woes Could Mean For Social Security Benefits
- Treasury Secretary Janet Yellen suggested this week that Social Security benefits will be impacted if Congress doesn’t raise or suspend the debt ceiling.
- The program’s funds that it uses to pay benefits will likely not face long-term consequences from any political gridlock on Capitol Hill.
- However, there is the possibility that monthly checks could be delayed.
Treasury Secretary Janet Yellen made headlines this week with an op-ed suggesting government checks could run dry if Congress doesn’t raise the debt ceiling.
“Nearly 50 million seniors could stop receiving Social Security checks for a time,”Yellen wrote.
The House of Representatives has passed a bill to temporarily fund the government and suspend the debt limit. However, that legislation could fail in the Senate. If lawmakers cannot come to an agreement, the government would shut down on Oct. 1.
Social Security beneficiaries may breathe a sigh of relief to know that the program’s funds will still be there to pay their checks, regardless of what happens with the debt ceiling negotiations, according to Nancy Altman, president of Social Security Works, an advocacy group focused on expanding benefits.
However, there is the possibility that a government shutdown could delay how fast that money reaches people.
Income From An Annuity
You decide the payment amount you receive when you buy the annuity. Your annuity income can increase each year by a fixed percentage, or indexed with inflation.
You can choose to be paid monthly, quarterly, half-yearly or yearly.
An annuity bought with super money must pay you a certain percentage of the balance, based on your age. The Australian Taxation Office website has more information about minimum annual payments.
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What Determines Your Social Security Benefit
Your Social Security benefit amount is largely determined by how much you earned during your working years, your age when you retire, and your expected lifespan.
The first factor that influences your benefit amount is the average amount that you earned while working. Essentially, the more you earned, the higher your benefits will be. The SSA’s annual fact sheet shows workers retiring at full retirement age will receive a maximum benefit amount of $3,148 for 2021. The Social Security Administration calculates an average monthly benefit amount based on your average income and the number of years you are expected to live.
In addition to these factors, your age when you retire also plays a crucial role in determining your benefit amount. While you can begin receiving Social Security benefits as early as age 62, your benefit amount is reduced for each month that you begin collecting before your full retirement age. Full retirement age is 66 and ten months for those who turn 62 in 2021. It increases by two months each year until it hits the current full retirement age cap of 67 for anyone born in 1960 or later.
Ways To Increase Social Security Benefits
As with most matters financial, the maxim Its not what you make, its what you keep, holds true for Social Security benefits. One way to increase a Social Security benefit simply is to pay less tax on it. Methods do exist for reducing or avoiding taxes on Social Security benefits. Here are overviews of some strategies for Social Security maximization.
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How Much Of Your Social Security Income Is Taxable
Social Security payments have been subject to taxation above certain income limits since 1983. No inflation adjustments have been made to those limits since then, so most people who receive Social Security benefits and have other sources of income pay some taxes on the benefits.
No taxpayer, regardless of income, has all of their Social Security benefits taxed. The top-level is 85% of the total benefit. Here’s how the Internal Revenue Service calculates how much is taxable:
- The calculation begins with your adjusted gross income from Social Security and all other sources. That may include wages, self-employed earnings, interest, dividends, required minimum distributions from qualified retirement accounts, and any other taxable income.
- Then, any tax-exempt interest is added.
- If that total exceeds the minimum taxable levels, at least half of your Social Security benefits will be considered taxable income. You then have to take the standard deduction or itemize deductions in order to arrive at your net income.
The amount you owe depends on precisely where that number lands in the federal income tax tables.
Combined income = your adjusted gross income + nontaxable interest + half of your Social Security benefits
Contact Our Texas Disability Attorney To Discuss Your Situation
Social Security benefits can be challenging to understand. If you have questions about the disability benefits you are entitled to receive, contact our office to discuss your case with a Texas disability attorney.
You could be entitled to other benefits that may or may not impact your SSI or SSDI benefits.
Does Social Security Income Count As Income
Yes, but you can minimize the amount you owe each year by making some wise moves before and after you retire. Consider investing some of your retirement savings in a Roth account, to shield your withdrawals from income tax. Take out some retirement money after you’re 59½ but before you retire, to take care of the taxes before you need the money. And, you might talk to a financial planner about a retirement annuity.
What Happens To My Ssi Benefits If I Begin Receiving Retirement Income
Supplemental Security Income is a needs-based disability benefit. It is not based on your work history. Social Security retirement is based on your work history. The amount you draw for Social Security retirement is based on your average lifetime earnings. Unlike SSI, where you live or who you live with does not impact your retirement income.
If you qualify for Social Security, your SSI payments could decrease or end if the retirement funds increase your income over the limit for SSI benefits.
The same is true for private retirement accounts and pension payments. If you receive income from private retirement accounts or pension accounts, the income could disqualify you for SSI benefits.
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Social Security Retirement Benefits And Private Annuities: A Comparative Analysis
Retirement income in the United States has been described as a three-legged stool composed of Social Security benefits, personal savings, and employer-based retirement plans. For the latter, today’s workers usually have a defined contribution plan in which the worker and employer contribute to the plan and the worker bears the risk for account performance. At retirement, the worker has the option of purchasing an annuity, which is similar to Social Security benefits and traditional defined benefit pension plans insofar as they provide a steady income stream for life. This issue paper examines the similarities and differences between Social Security retirement benefits and annuities, and the factors that determine how much lifetime retirement income an individual would receive.
Dale Kintzel is an economist with the Office of Policy Research, Office of Retirement Policy, Office of Retirement and Disability Policy, Social Security Administration.
Acknowledgments: The author would like to thank Anya Olsen, David Rajnes, Patrick Purcell, and Joni Lavery for their helpful comments.
The findings and conclusions presented in this paper are those of the authors and do not necessarily represent the views of the Social Security Administration.
Your Annuity If You Die
When you buy an annuity you can either nominate a reversionary beneficiary or choose a guaranteed period option.
- Reversionary beneficiary Your nominated beneficiary will get your income payments for the rest of their life. This is usually at a reduced level, for example, 60% of your income stream.
- Guaranteed period A minimum payment period is set when you buy the annuity. If you die, your beneficiary will get your payments, either as a lump sum or income stream. The income payments will not reduce.
What Happens To My Ssdi Benefits If I Begin Receiving Retirement Income
Generally, individuals are not eligible to receive SSDI benefits and Social Security. However, your SSDI benefits should convert to Social Security when you reach full retirement age. In many cases, your monthly benefit will not change.
Unlike SSI benefits, private retirement income should not impact your SSDI benefits. However, there are some cases in which your SSDI payments could be reduced if you begin receiving private retirement income.
Avoiding Social Security Offset With Annuities
With an annuity, you can reduce or eliminate taxes on your Social Security income. According to Section 72 of the Internal Revenue Code, your annuity earnings can grow tax free during the deferral period. This means that you dont have to pay taxes on your annuity unless you pull funds out for income gains within the annuity will not offset your Social Security benefits.
Additionally, deferred fixed annuities typically earn higher interest rates than CDs, money markets, and savings accounts, and usually dont carry management fees. Moving your savings into a deferred annuity will allow you to accumulate and compound tax-deferred earnings at a higher interest rate until you truly need the income.
Many investors who are approaching retirement maximize their Social Security benefits by moving retirement funds into annuities. For more information on this, see our section 401 Rollover Is It Right For Me? or Contact an licensed financial professional.
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Foreign Social Security Pensions
Absent application of a particular treaty provision, foreign social security pensions are generally taxed as if they were foreign pensions or foreign annuities. They are not eligible for exclusion from taxable income the way a U.S. social security pension might be unless a tax treaty provides for an exclusion.
Most income tax treaties have special rules for social security payments. Generally, U.S. treaties provide that social security payments are taxable by the country making the payments. However, a foreign social security payment may also be taxable in the United States if you are a U.S. citizen or resident, as a result of the saving clause. And remember, not all treaties have the same provisions for foreign social security pensions, so always refer to the specific treaty at issue.
Are Spousal Survivor Disability And Ssi Benefits Taxable
These programs all follow the same general rules as the Social Security program for retirees, with one exception: Supplemental Security Income, or SSI for short, is not a Social Security program. It’s a separate program for people who are needy and disabled people, and payments from it are not taxable.
How Do I Determine If My Social Security Is Taxable
Add up your gross income for the year, including Social Security. If you have little or no income in addition to your Social Security, you won’t owe taxes on it. If you’re an individual filer and had at least $25,000 in gross income including Social Security for the year, up to 50% of your Social Security benefits may be taxable. For a couple filing jointly, the minimum is $32,000. If your gross income is $34,000 or more, up to 85% may be taxable. The minimum for a couple is $44,000.
Securing Your Retirement With Annuities Without Offsetting Social Security
Annuity FYI considers the most competitive variable and fixed annuities to be some of the soundest retirement vehicles. Retirement variable annuities offer tax-deferred growth, and depending on how they are structured can guarantee principal and lifetime income to make sure that you do not outlive your money, and provide death benefit protection to support to your beneficiaries.
There is an additional benefit to retirement annuities that few people are aware of a benefit that is extremely important in retirement planning: Social Security Offset.
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How Does This Government Shutdown Affect My Social Security
If you were receiving federal retirement benefits prior to the government shutdown, then there is a high likelihood you won’t be impacted at all.
The money that funds the nation’s Social Security program comes from the Social Security Trust Fund, an independent trust that is managed by the Social Security Administration.
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This fund and the distribution of the money in it is deemed an “essential government service” during a federal shutdown and is therefore protected from any freeze in government spending.
This is similar to the way the U.S. Postal Service or air traffic controllers are treated during a shutdown. Because mail delivery and safe airways are essential to keeping the nation running smoothly, they are protected from the significant shuttering applied to other programs that are deemed “non-essential” like the National Park Service.
Because social security payments are necessary for the well-being of America’s retirees, it is not affected by the government shutdown.
However, there is one group of retirees that will be subject to a suspension of their benefits until the shutdown is resolved…
Qualifying For Disability Benefits
SSDI benefits are awarded to people whose medical condition meets the SSAs definition of a disabilitythat is, a physical or mental health condition that prevents someone from working and engaging in Substantial Gainful Activity . In addition, the qualifying condition must have lasted or be expected to last for at least one year .
Unlike other Social Security programs such as Supplemental Security Income , qualifying for disability also requires that you have earned enough work credits. SSDI is funded by Social Security payroll taxes, so in order to be considered insured, you must have worked long enough, recently enough, and you must have paid Social Security taxes on your earnings. Once you qualify for disability, your benefits will continue unless your disability improves or until you reach retirement age.
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The Effects On Married People
If you are married and either you or your spouse receives an inheritance annuity, your Social Security benefits are taxed at normal income rates if your combined incomes surpass income limits. If your combined household incomes top $32,000, up to 50 percent of your Social Security benefits are taxed and up to 85 percent if your incomes exceed $44,000.
Keep Some Retirement Income In Roth Accounts
Contributions to a Roth IRA or Roth 401 are made with after-tax dollars. This means they’re not subject to taxation when the funds are withdrawn. So the distributions from your Roth IRA are tax-free, provided their taken after you turn 59 1/2 and have had the account for five or more years. Distributions taken from a traditional IRA or 401 plan, on the other hand, are taxable.
That means the Roth payout won’t affect your taxable income calculation. That also means it won’t increase the tax you owe on your Social Security benefits.
This advantage makes it wise to consider a mix of regular and Roth retirement accounts well before retirement age. The blend will give you greater flexibility to manage the withdrawals from each account and minimize the taxes you owe on your Social Security benefits.
A similar effect can be achieved by managing your withdrawals from conventional savings, money market accounts, or tax-sheltered accounts.
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The Tax Impact Of 401 Savings
Once you begin taking distributions from your 401, or other retirement savings plan, such as an IRA, you won’t owe Social Security tax on the distribution for the reason described above you paid your dues during your working years. But you may have to pay income taxes on some of your benefits if your combined annual income exceeds a certain amount.
The income thresholds are based on your “combined income,” which is equal to the sum of your adjusted gross income , which includes earned wages, withdrawals from any retirement savings accounts s, any non-taxed interest earned, and one-half of your Social Security benefits). If you take large distributions from your traditional 401 in any given year that you receive benefitsand remember, you’re required to start taking them from all 401s once you turn 72you are more likely to exceed the income threshold and increase your tax liability for the year.
According to the Social Security Administration, for 2020, if your total income for the year is less than $25,000 and you file as an individual, you won’t be required to pay taxes on any portion of your Social Security benefits. If you file jointly as a married couple, this limit is raised to $32,000.
Withdraw Taxable Income Before Retirement
Another way to minimize your taxable income when drawing Social Security is to maximize, or at least increase, your taxable income in the years before you begin to receive benefits.
You could be in your peak earning years between ages 59½ and retirement. Take a chunk of money out of your retirement account and pay the taxes on it. You can use it later on without pushing up your taxable income.
For example, you could withdraw funds a little earlyor “take distributions,” in tax jargonfrom your tax-sheltered retirement accounts such as IRAs and 401s. You can make distributions penalty-free after age 59½. That means you avoid being dinged for making these withdrawals too early, but you must still pay income tax on the amount you withdraw.
Since the withdrawals are taxable , they must be planned carefully with an eye on the other taxes you will pay that year. The goal is to pay less in tax by making more withdrawals during this pre-Social Security period than you would after you begin to draw benefits. That requires considering the total tax bite from withdrawals, Social Security benefits, and any other sources.
Be mindful, too, that at age 72, you’re required to take minimum distributions from these accounts, so you need to plan for those mandatory withdrawals.
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