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My goal is to keep my mandatory 401-K distributions below the $25K cutoff where Social Security is taxed.
You aren't allowed a whole lot of "other" income before SS becomes taxable. The $25k is actually "provisional" or "combined" income which already includes 50% of your SS benefit.
Assume you will receive $30,000 SS. If you withdraw $15,000 from your IRA plus $15,000 SS (50% of your benefit) puts you over the $25k by $5,000. 50% of that $5,000 is added to ordinary income up to $34k. Anything over $34K, 85% is added to ordinary income. Those who have a sizable tax-deferred IRA, receive a decent pension and Social Security can very easily have their SS benefits taxed.
Exactly correct. It takes only roughly 15k in other income to pop you into 50% of SS, AND if you get the max SS, not much more to pop you to the 85% max. Which makes sense, because the means testing of SS, INFERS the assumption that if you were a high wage earner, you would "need" less SS, because you can save more. It was not "meant" for the high wage earner, rather as insurance for bad situations or the less fortunate. It is impossible for me to avoid paying federal tax on 85% of my SS. It is the law, and has been that way always. I decided I want to have more income (and choices) than the max SS offers, so by law, I have to pay.
But an 85% taxed max SS still beats the heck out of the same amount as ordinary income, and it is COL adjusted. Worse deals out there, for supplemental income. At FRA assuming things hold as is, SS will start as about 25% and that percentage will increase with COLA increases, vs my fixed pension, which will be about 50% to start, and drop as inflation rises.
With 93 poll responders to date, I think the sample size is adequate to compare the poll stats with national stats:
1. This poll responses:
I depend on SS for 85 to 100 percent of my income. 11 11.83%
I depend on SS for 70 to 84 percent of my income. 4 4.30%
I depend on SS for 55 to 69 percent of my income. 8 8.60%
I depend on SS for 40 to 54 percent of my income. 17 18.28%
I depend on SS for 25 to 39 percent of my income. 21 22.58%
I depend on SS for zero to 24% of my income. 32 34.41%
Since I don't have access to the US SS stats with more granularity, I will reduce the granularity of this current poll to compare with the US stats.
1. This poll % households who depend on SS for >70% of income: ~16%
US poor aged households depends on SS for 77% of income: 14%
2. This poll % households who depend on SS for 40-70% of income: ~27%
US average households who depend on SS for 38% of income: 46%?? (I just substract 14% poor folks from 100 then divide by 2 to get the average. It's very crude math but it's the best that I estimate)
3. This poll % if households who depends on SS for 0-39% of income: 56%
US average households who depend on SS for 0-37% of income: 46%??? (see explanation in 2.)
So based on this limited 97 sample size, this forum responds came from roughly the same % of 'aged poor' as the general population whereas there appeared to be more affluent seniors in this forum than the general population.
It is interesting to compare these stats with the stats below:
So, one could guess that people who depends on SS for only ~25% or less of their income were high-wage earners who are likely to substantial savings and/or pensions. For those folks, they would not be at all affected or worried the lack of the measly COLA in 2016.
It's clear that if one depends on SS for >70% of their income, one would feel the impact of no COLA.
Good response to an already very interesting poll! -- I suppose one must assume that most of the responses were based on total household SS income vs other income. And, as with most things in life, there seems to be an 80/20 relationship (SS comprises less than HALF the income for 80-percent of the people). But, what do the responses mean??
1). 80-percent planned better for retirement?
2). 20-percent were lower wage earners?
3). 80-percent of responders have a pension or some other form of high fixed income?
4). 20-percent don't have pensions or other investments?
5). The people on CD are the same/different from those engaged in national SS polls?
6). Most people are doing better in retirement than the younger folks imagine they will be doing?
Good response to an already very interesting poll! -- I suppose one must assume that most of the responses were based on total household SS income vs other income. And, as with most things in life, there seems to be an 80/20 relationship (SS comprises less than HALF the income for 80-percent of the people). But, what do the responses mean??
1). 80-percent planned better for retirement?
2). 20-percent were lower wage earners?
3). 80-percent of responders have a pension or some other form of high fixed income?
4). 20-percent don't have pensions or other investments?
5). The people on CD are the same/different from those engaged in national SS polls?
6). Most people are doing better in retirement than the younger folks imagine they will be doing?
The emphasis is my guess. I think people who don't plan/prepare for retirement are far less likely to visit a forum for retirement discussions than those that do. When an investment topic is discussed, most posters display far more savvy than the average "man on the street". If we were to poll average retirement account balance, I suspect it would be at least double the national average, probably more.
You aren't allowed a whole lot of "other" income before SS becomes taxable. The $25k is actually "provisional" or "combined" income which already includes 50% of your SS benefit.
Assume you will receive $30,000 SS. If you withdraw $15,000 from your IRA plus $15,000 SS (50% of your benefit) puts you over the $25k by $5,000. 50% of that $5,000 is added to ordinary income up to $34k. Anything over $34K, 85% is added to ordinary income. Those who have a sizable tax-deferred IRA, receive a decent pension and Social Security can very easily have their SS benefits taxed.
The bar for "other" income is very low.
Crap! I needed to read the 1040 instructions more carefully. I have the Social Security Benefits Worksheet from the 1040 instructions up. They even nail you on tax free munis. That $25K number isn't indexed to inflation. By the time I'm collecting Social Security, the $41,664 benefit I get now deferring to age 70 will likely be inflation-adjusted to $50K+. There's no way I can shift enough to a Roth to stay under $34K.
There's pretty much no way to dodge it. I'll paying Federal income tax on 85% of my Social Security check. It looks like my effective tax rate projects to be about 15% based on what my minimum IRA/401-K distributions should look like. It sucks but it won't kill me.
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