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Last Updated: May 30th, 2024

Social Security & Taxes

A Roadmap to Retirement Security

Social Security is a vital source of income for many retirees, but tax implications can sometimes be confusing. In 2024, whether your benefits are taxed depends on your combined income, which includes your adjusted gross income (AGI), non-taxable interest, and half of your Social Security benefits.

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In 2024, whether your benefits are taxed depends on your combined income (calculate here), which includes your adjusted gross income (AGI), non-taxable interest, and half of your Social Security benefits.

Taxation Thresholds:

  • Single Filers:
    • Income below $25,000: Good news! No Social Security benefits are taxed.
    • Income between $25,000 and $34,000: Up to 50% of your benefits may be taxable.
    • Income above $34,000: Up to 85% of your benefits may be subject to taxes.
  • Married Filing Jointly:
    • Income below $32,000: You get a tax break! No Social Security benefits are taxed.
    • Income between $32,000 and $44,000: Up to 50% of your benefits may be taxable.
    • Income above $44,000: Up to 85% of your benefits may be subject to taxes.

Taxable Benefits:

The portion of your benefits that gets taxed depends on where your combined income falls within the thresholds mentioned above. The maximum percentage that can be taxed is 85%. This taxable amount is then added to your regular taxable income and taxed at your ordinary income tax rate.

Examples:

Let’s say you’re single and your AGI is $20,000. You also receive $10,000 in Social Security benefits for the year. Here’s how to calculate your combined income and potential tax impact:

  • Half of your Social Security benefits: $10,000 / 2 = $5,000
  • Combined income: $20,000 (AGI) + $0 (non-taxable interest) + $5,000 (half benefits) = $25,000

Since your combined income falls below $25,000, none of your Social Security benefits would be taxed in this scenario.

 

How They Calculate Your Combined Income:

This might seem complex, but it’s actually quite straightforward. Here’s the formula:

Combined Income = Adjusted Gross Income (AGI) + Nontaxable Interest + ½ Social Security Benefits

Combined Income Calculator

Combined Income:

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Components

  1. Adjusted Gross Income (AGI)

    • Definition: AGI is your total gross income minus specific deductions. Gross income includes wages, dividends, capital gains, business income, and other income.
  2. Nontaxable Interest
    • Definition: This is interest income that is not subject to federal income tax. Examples include interest from municipal bonds.
    • Calculation: Nontaxable Interest=Total interest earned from nontaxable sources
    • Typically, this is reported to you on Form 1099-INT or similar tax documents.
    • ½ Social Security Benefits

       

    • Definition: This is half of the Social Security benefits you receive. Social Security benefits include retirement, disability, and survivor benefits.
    • Calculation:
    • The total amount of Social Security benefits is reported to you on Form SSA-1099.

Consulting a licensed financial planner can provide personalized advice tailored to your unique situation. Remember, planning for a secure and fulfilling retirement starts with identifying your goals and making informed decisions.

 

Important Additional Points:

  • Tax Resources: For more information on Social Security taxation, you can visit the IRS website (https://www.irs.gov/faqs/social-security-income) or reputable tax information sites.
  • Impact of Deductions: Remember, deductions you qualify for can lower your AGI, potentially affecting your combined income and reducing the taxable portion of your Social Security benefits.
  • State Taxes: It’s important to remember that these are federal tax guidelines. Some states may have additional taxes on Social Security benefits, while others may not tax them at all. Be sure to check with your state’s tax office for details.
  • Consult a Tax Professional: While this blog provides a general overview, consider consulting a tax professional if you have a complex tax situation, significant non-taxable income, or run your own business. They can offer personalized guidance on your specific circumstances.

By understanding these basics, you can be better prepared to navigate the tax implications of your Social Security benefits in 2024. Remember, a little planning can go a long way in ensuring a smooth tax season!

Estimate How Much You Will Need In The Future

  1. Current Annual Expenses:

    • Enter your current annual expenses. This should represent your present yearly spending.

  2. Average Inflation Rate:

    • Input the average inflation rate (in percentage) in the “Average Inflation Rate (%)” field. This reflects the expected annual increase in prices. The average inflation rate for the past 10 years is 2.65%.
       

  3. Years Into the Future:

    • Specify the number of years into the future you want to plan for in the “Years Into the Future” field. This could be the duration until your retirement or any future financial goal.

  4. Click “Calculate”:

    • Hit the “Calculate” button to see the estimated future expenses and the corresponding savings needed.

  5. Review Results:

    • The calculator will display the estimated future expenses and the required savings to cover those expenses.
 

Result:

Your estimated future expenses will be $X.

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Frequently Asked Questions

Claiming:

  • Q: I’m thinking of retiring early. What are the downsides of claiming benefits before my full retirement age?

  • A: You’ll receive a permanently reduced monthly benefit for each month you claim before reaching your full retirement age. The reduction can be significant, up to 30%!

  • Q: Should I wait until 70 to claim benefits even if I need the money now?

  • A: While delaying benefits until 70 gets you the highest monthly payout, it’s not always the best option. Consider your financial needs, health, and future income sources. Talk to a financial advisor for personalized advice.

  • Q: I’m still working. How do income limits affect my Social Security benefits?

  • A: If you’re below your full retirement age and earn over a certain amount from work, you might receive reduced benefits. The limit and reduction rate increase once you reach full retirement age.

Benefits:

  • Q: How much will I receive in Social Security benefits?

  • A: The amount depends on your work history and earnings. You can estimate your benefit online at the Social Security Administration website: https://www.ssa.gov/

  • Q: Will my Social Security benefits be taxed?

  • A: Depending on your total income, up to 50% of your benefits may be subject to federal income tax. Some states also tax Social Security benefits.

  • Q: I’m married. Can my spouse claim benefits based on my work history?

  • A: Yes, your spouse may be eligible for spousal benefits, even if they haven’t worked themselves. The amount depends on your earnings record and their age.

Other:

  • Q: My Social Security number was stolen. What should I do?

  • A: Report the theft immediately to the Social Security Administration and the Federal Trade Commission. Take steps to protect your identity and monitor your credit report.

  • Q: Where can I learn more about Social Security?

  • A: The Social Security Administration website offers a wealth of information:  https://www.ssa.gov/. You can also contact your local Social Security office for assistance.

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Last Updated: August 15th, 2024

The Best Time to Start Receiving Social Security Benefits:

A Comprehensive Guide for Retirees

Social Security is a crucial supplemental income source during retirement, and the timing of when to start receiving benefits can significantly impact your financial well-being. This blog aims to help retirees make informed decisions by exploring the three common scenarios: stopping work before retirement age, continuing to work while receiving benefits, and working without receiving retirement benefits. We will delve into each situation’s key points, benefits, and considerations, ensuring you can choose the best time to receive Social Security benefits.

Social Security is one of the few supplemental income sources during retirement that changes yearly for inflation. Deciding whether you should wait to receive Social Security benefits is essential. If you choose to start your benefits before your full retirement age, your benefits will likely be reduced at a fraction of a percent for every month before you reach the full retirement age. It might be better to wait until you reach full retirement age or delay it more to receive an increase in Social Security benefits. 

According to Social Security Administration, based on data from 2022, your full retirement age =

* 66 years and four months (if born in 1956)  
* 67 years for those born in 1955 and beyond.

Situation A
Stopping Work Before Retirement Age & Starting Social Security Benefits

If you are considering retiring early and starting to receive Social Security benefits, there are essential factors to consider. You can apply for Social Security benefits as early as age 62, but doing so will result in reduced benefits. The reduction amounts to 6% per year or 0.5% per month (as of 2022) for each month you receive benefits before reaching your full retirement age. On the other hand, if you delay receiving benefits, you may qualify for an increase of 8% per year or 0.67% per month until you reach the age of 70.

Key Points:

  • You can apply for Social Security Benefits as early as age 62
  • If you apply before reaching your full retirement age, your benefits will be reduced by 6% per year or 0.5% per month (2022), and if you delay, it’s an 8% per year deferral credit or 0.67% per month. 

It’s crucial to weigh the trade-offs carefully. While starting benefits early can provide additional income, waiting until your full retirement age or beyond can result in higher benefit amounts for the rest of your life. For instance, delaying benefits until age 70 can yield up to 33% higher benefits compared to taking them at full retirement age, as shown in Table 1.

You will automatically enroll in Original Medicare (Part A and Part B) when you turn 65.

Table 1, 2020  What your Social Security reduction would be if you applied at age 62 compared to an increase at age 70

Social Security Administration: Starting Your Retirement Benefits Early, October 2020 Social Security Administration: Delayed Retirement Credits, October 2020

If you decide to work after receiving Social Security benefits, your benefit payments will be recalculated based on that year’s income limits. Additionally, at age 65, you will automatically enroll in Original Medicare (Part A and Part B).

Situation B
Continuing Work and Receiving Social Security Benefits

Retirees who wish to keep working while receiving Social Security benefits can do so, but certain income limits may affect the benefits they receive. If you are younger than your full retirement age during the tax year, the income limit is $22,320 in 2024. For every $2 you earn above this limit, $1 will be deducted from your Social Security benefits. Once you reach your full retirement age, the income limit increases to $59,520, and the reduction changes to $1 in benefits for every $3 you earn above the limit.

However, it’s essential to understand that the income limits only apply to income earned through work and not other sources such as investments, annuities, pensions, or capital gains. Moreover, there are no reductions in benefits if you work after reaching your full retirement age.

Key Points:

  • You can work and receive Social Security benefits.
  • Your Social Security benefits will be reduced until you reach full retirement age. 
  • The maximum income you can earn to avoid an extra benefit reduction depends on how close you are to the full retirement age. If your income is above this limit, they will reduce your benefits until you reach full retirement age.
  • Double penalty – if you earn more than the income limit, apply before full retirement age.
  • There are no reductions if you work after you reach your full retirement age.

Can you work and receive Social Security benefits?


Yes, you can work and get Social Security benefits simultaneously. Social Security can give you the extra boost of income you need if your job doesn’t give you enough. However, there are income limits. They will deduct a certain amount from your benefits if you earn more than these limits. The income limits only apply to income from work, and it does not count for investments, annuities, pensions, or capital gains.
 

What are the Income Limits for 2024?

The Social Security Administration sets its income limits for people receiving Social Security benefits yearly. This is the amount you are allowed to earn without getting a reduction on your Social Security payments. If you make more than the limit ($22,320 in 2024), your benefits will be reduced (if you are younger than the retirement age). Luckily, these reductions will be returned to you when you reach full retirement. The social security benefits are only withheld temporarily.

If you’re younger than full retirement age during all of 2024, they will deduct $1 from your benefits for each $2 you earn above $22,320. If you reach full retirement that year, the limit changes to $59,520 (2024). They will deduct $1 in benefits for every $3 you earn above the limit.

If you are older than full retirement and decide to work, you will receive your full benefits; there are no income limits.

For more examples, visit ssa.gov. 
*note: there are different rules if you work outside the country or are on disability.

You will automatically enroll in Original Medicare (Part A and Part B) when you turn 65. Check before signing up for Medicare Part B if you or your spouse are still covered under an employer-provided group health plan.

Situation C
Continuing Work and Delaying Social Security Benefits

There can be significant advantages for retirees who choose to keep working and delay receiving Social Security benefits. For each month you delay your benefits beyond your full retirement age, your benefits increase. Delaying until age 70 can lead to the maximum possible increase in benefits, up to 33% more than what you would receive at your full retirement age (see Table 1). Furthermore, delaying Social Security benefits can be beneficial since your current earnings may replace earlier years of lower or no wages, leading to a higher benefit amount. However, keep in mind that enrolling in Original Medicare (Part A and Part B) three months before turning 65 is crucial to avoid penalties if you do not receive your Social Security benefits at that time.

Key Points:

  • If you decide to keep working and not start your benefits until after your full retirement age, your benefits will increase for every month you do not receive them until you reach the age of 70.
  • Delaying can also increase your benefits because your current earnings could replace an earlier year of lower or no wages.
 
*You will need to enroll in Original Medicare (Part A and Part B) three months before you turn 65 to avoid any penalties if you don’t receive your Social Security benefits when you turn 65

How much will you get?→Social Security Quick Calculator 

Want to learn more?

Deciding when to start receiving Social Security benefits is a critical financial decision that can significantly impact your retirement income. Each situation has its merits and drawbacks, and understanding the implications of starting early, continuing to work, or delaying benefits is crucial. By carefully assessing your financial needs, health status, and long-term goals, you can make an informed choice that aligns with your unique circumstances.

Feel free to schedule a meeting with one of our licensed financial planners if you need help deciding when to apply for social security benefits or retirement planning in general; identifying goals and objectives is key to a successful retirement.

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