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Another thing to consider is the tax torpedo, explained below. This is the argument against filing early for those who have the funds to have a large withdraw. But I don't really think $25,000 is a whole lot of money to be earning through withdraws, other earnings etc.
But those with more income could have a portion of their Social Security taxed as they pass certain thresholds. Social Security isn't taxed when provisional income is less than $25,000 for individuals ($32,000 for married couples filing jointly). When income is between $25,000 to $34,000 ($32,000 and $44,000 for married filing jointly), 50 percent of Social Security income is taxable. When provisional income is above those amounts, 85 percent of Social Security is taxable.
Provisional income is calculated by taking your modified adjusted gross income and adding half of the Social Security benefits received."Another shocker is that it's all your sources of income, even income from tax-free bonds," said CFP Nancy Hecht of Certified Financial Group. The tax torpedo typically comes at age 70½ , when the required minimum distribution from tax-deferred 401(k) plans and individual retirement accounts kicks in.
i guess we will see what ss does in this case. it does seem silly as written , that you can make 1400 in sept , 1400 in oct , 1400 in no and 18,000 in december and give up only 1 check .
so the logic the way ss wrote it on the website make no sense .
so per my layman calculations...this means a married couple can make up to 32k per yr (Combined) or $1333 per mo each w/no tax.
Plus the 24K standard deduction = $12K yr/$1000 each person per month.
$1000
$1333 SS
-----------
$2333 income per mo. PER PERSON without being taxed.
Otherwise a couple can make up to $19,050 yr to remain within the lowest Fed 10% tax bracket.
I have no idea if they are still paying into SS, State tax, Medicare and stuff after that but I guess plan on about 25% effective tax rate.
So one could take home a little over $1100 per mo, per person (after taxes at 25% rate) making it $3433 per person
magi for purposes of getting ss taxed is before deductions and exemptions . it even includes muni interest .
you add 1/2 the ss amount you got in total to those other income numbers and that is magi for ss purposes . there are some deductions that are allowed but not the ones we typically take on schedule A
TIDBIT FOR EVERYONE- Anytime you accept a SS check over $1250 a month and you do not have more automatic income coming in (like RMD"s at age 70.5, pensions, etc) then you might be putting your future at risk.
For a married couple, it can be adventageous to have one spouse delay SS credits for a larger SS check and the other to accept their check early or at FRA.... if needed ...to maintain the amount at $1240 or less per mo. Again, considering there is no other income is shown.$1240 is the cuttoff for one person, on medicaid. Keep in mind which spouse might be ill or die first. Since you could be inheriting their larger SS check as your own later at their death. Both spouses alive mean...the one person on medicaid can jointly have... a little over 100K in the bank / other resources. Otherwise an individual is 2k monthly resource limit. Most cannot do that.
We will ensure our checks are under $1240 per mo each. Could flip flop being on medicaid if need...
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See, we are talking apples and kumquats here. You are talking about strategy to protect yourself for medicaid purposes. I’m talking about strategy that can increase net income in retirement from $8000/month to $8500/mo with less risk, while maintaining more than $600k in savings. Medicaid is not even a consideration.
If you look at things strictly from a dollars and cents , sliding scale viewpoint , then waiting is better . But I would rather have my money earlier so I can enjoy it instead of waiting till I'm old and unable to do the things that I can finally afford . Quality of life trumps longevity in my book . I won't lose sleep over " breaking even " .
Without being too pedantic, your statement makes no sense. It has been repeatedly shown you will have MORE income from day one (anywhere from 5 to 8k more oer hear in my case) by delaying. OR you require the money in order to retire. In which case you are not “waiting to get more to spend later”. NO ONE that actually delays filing but still retires at 62 spends less (or more correctly has less income) when they retire early and file later!! I will draw more from savings to equal what I will get at 70, (or 68, or whenever I will file) from day one, BECAUSE I will be getting a much karger check when I file, and will be able to take that whole amount less out of savings FOR THE REST OF MY LIFE. You, on the other hand, will be stuck with thatbsmaller check, for the rsst of yours. If that check is more than enough to make you happy because you can’t afford or fear the savings reduction, then that is fine. Perfectly good reason. But to have “more money now instead of later” is NOT a reason because it is simply not true.
If you look at things strictly from a dollars and cents , sliding scale viewpoint , then waiting is better . But I would rather have my money earlier so I can enjoy it instead of waiting till I'm old and unable to do the things that I can finally afford . Quality of life trumps longevity in my book . I won't lose sleep over " breaking even " .
it makes no sense to delay and not be able to lay out the ss money up front for a full spending budget .
if you can't do that you can't afford to delay , it is not an option .
so per my layman calculations...this means a married couple can make up to 32k per yr (Combined) or $1333 per mo each w/no tax.
Plus the 24K standard deduction = $12K yr/$1000 each person per month.
$1000
$1333 SS
-----------
$2333 income per mo. PER PERSON without being taxed.
Otherwise a couple can make up to $19,050 yr to remain within the lowest Fed 10% tax bracket.
I have no idea if they are still paying into SS, State tax, Medicare and stuff after that but I guess plan on about 25% effective tax rate.
So one could take home a little over $1100 per mo, per person (after taxes at 25% rate) making it $3433 per person
as far as getting ss taxed the calculations are pre-deductions . they count all taxable income both earned and passive but you have two moving targets to deal with .
the more you go over the threshold , the more ss increases your magi and the more the provisional income increases the more ss gets taxed and round and round we go .
so looking at this example , which uses the old tax brackets , here is a poor guy who took an extra 1k from his ira for a vacation and voom ,that 1k saw a marginal tax rate on it of 46% of that extra money .
Harry is an individual with $36,000 of income but a hefty $22,000/year of Social Security benefits. His Social Security provisional income is $36,000 + $11,000 = $47,000, which is $13,000 over the upper threshold for individuals. As a result, $15,550 of his Social Security benefits are subject to taxation (which is 50% of the amount from $25,000 to $34,000, plus 85% of the excess of provisional income above the $34,000 threshold), which puts his AGI at $51,550. Even after a standard deduction and one personal exemption, Harry's taxable income would be $51,550 - $6,100 - $3,900 = $41,550, which places him in the 25% tax bracket.
If Harry now takes an additional $1,000 from his IRA, his provisional income increases to $48,000, his taxable Social Security benefits increase to $16,400, and his AGI rises to $53,400. The net result: Harry's AGI increased by $1,850 for "just" a $1,000 IRA withdrawal, and with a 25% tax bracket his liability will be $1,850 x 25% = $462.50, which equates to a whopping $462.50 / $1,000 = 46.25% marginal tax rate!
michael kitces does an excellent job explaining how ss is taxed and the pitfalls of the calculation.
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