SS benefit taxes

[rocks911]

Hello,

A quick question. I am 62 and retired from the fire service. I draw a retirement check from the state that totals in the neighborhood 72K a year. I also draw on a 457 (the public version of the 401) which totals about 27K a year. I am married and the wife does not work. She is about to come into a modest inheritance (which I might rely on the slow the drawdown of my 457) but otherwise those two checks from my fire career are what we rely on.

I'm aware of the pro's and cons of early Social Security but the history of my family genes has me leaving earth early so by my calculations it might be best to take SS at my 1st opportunity.

I also do not work. So there are no 'wages' coming into our household. So what is my tax exposure from a SS check? How much

* after re-reading I thought my question might not be clear. I know that if you have a job while drawing Social Security your benefits are taxed (until you arrive at your full retirement age) and essentially what I need to know is if I start drawing SS would any of it be taxed if my only sources of income are other than 'work' and 'wages'

 

[Sunset]

One reason for delaying SS , is to provide a larger SS to your Wife after you are dead.
IF she has no SS of her own or it's small, then it becomes more important.
IF your lovely and large pension check from the State has no or tiny survivor pension, meaning she gets no pension after you die, then delaying SS is even more important.

 

[Sunset]

As for the taxes, 85% of your SS will be taxed, regardless of when you take it due to your large pension.

 

[rocks911]

The wife is taken care of. She might have to down-size a bit but she'll be comfortable and she gets 75% of my pension check when Im gone.

I realize thats a big pension but I also have big bills. Strange how that works. I had hoped to downsize and readjust in retirement to a smaller place but my wife has fallen in love with our giant house and all the bills that come with it. And it kinda works for me because the housing market I'm in is about as stable as anywhere so the value of the house in my opinion is worth a few years of continued financial commitment. However if I could get my SS that ive paid into my entire 35 year fire career to help out with the house payment, well that would be swell.

Thanks for the quick reply

 

[MissMolly]

Hello,

A quick question. I am 62 and retired from the fire service. I draw a retirement check from the state that totals in the neighborhood 72K a year. I also draw on a 457 (the public version of the 401) which totals about 27K a year. I am married and the wife does not work. She is about to come into a modest inheritance (which I might rely on the slow the drawdown of my 457) but otherwise those two checks from my fire career are what we rely on.

I'm aware of the pro's and cons of early Social Security but the history of my family genes has me leaving earth early so by my calculations it might be best to take SS at my 1st opportunity.

I also do not work. So there are no 'wages' coming into our household. So what is my tax exposure from a SS check? How much

* after re-reading I thought my question might not be clear. I know that if you have a job while drawing Social Security your benefits are taxed (until you arrive at your full retirement age) and essentially what I need to know is if I start drawing SS would any of it be taxed if my only sources of income are other than 'work' and 'wages'

SS taxation is not reliant on wages. It is based on total income. Pension and your 457 are income.

 

[rocks911]

As for the taxes, 85% of your SS will be taxed, regardless of when you take it due to your large pension.

Now that is astounding! I had no idea. Apparently lawmakers have managed to screw me yet again.

Is it my fault I worked very hard during my 35 year career and climbed the difficult promotional ladder. 10 years serving every day on an ambulance (with Hep C as a result) and 20 years as a fire officer that I should have my benefits taxed? - Sorry, that was rhetorical, just had to rant

 

[rocks911]

SS taxation is not reliant on wages. It is based on total income. Pension and your 457 are income.

I guess I dreamed that. Getting old is challenging

 

[RunningBum]

It sounds like you are confusing the benefit reduction when you are collecting and still working (https://www.ssa.gov/benefits/retirement/planner/whileworking.html) with taxation of SS benefits based on all income (https://www.ssa.gov/benefits/retirement/planner/taxes.html).

The first does not apply to you since you aren't working.

The second is a somewhat complicated calculation but as previously stated, with your large pension income you will have the full 85% of SS benefits taxed.

 

[oldtimer]

Taxation of Social Security benefits will explain the taxing of SS and gives great heat map for quick glance of how your other income impacts your taxes when receiving SS.

Even if you pass on early how much longer will your spouse live? Along with a decrease in the pension amount she will receive, she will lose the smaller of your & her SS payments. Check opensocialsecurity.com to try various scenarios of when to start SS. You can override the default longevity by clicking on the checkbox at the top of the page,

 

[athena53]

Is it my fault I worked very hard during my 35 year career and climbed the difficult promotional ladder. 10 years serving every day on an ambulance (with Hep C as a result) and 20 years as a fire officer that I should have my benefits taxed? - Sorry, that was rhetorical, just had to rant

Join the club. Most of us have had that rant in the past. My late husband's SS was taxed even though he had no other income because I was still working FT. That was a rude shock.

And check to see if your state includes the taxable portion of SS in your state taxable income. Mine does.

 

[RE2Boys]

Now that is astounding! I had no idea. Apparently lawmakers have managed to screw me yet again.

All income is taxable unless exempt by law. SS became partially taxable in 1984, almost 40 years ago!

 

[pb4uski]

Now that is astounding! I had no idea. Apparently lawmakers have managed to screw me yet again.

Is it my fault I worked very hard during my 35 year career and climbed the difficult promotional ladder. 10 years serving every day on an ambulance (with Hep C as a result) and 20 years as a fire officer that I should have my benefits taxed? - Sorry, that was rhetorical, just had to rant

All income is taxable unless exempt by law. SS became partially taxable in 1984, almost 40 years ago!

Did you seriously expect that SS income would be tax-free when your other pension income is taxed? If so, your ire should be with yourself for being so uninformed.

You don't think that the rest of us who are paying tax on 85% of our SS didn't also work hard over a long career? You chose your career and we thank you for your service but when it comes to SS there is no preferential treatment.

The 85% broadly equates to the amount of SS from growth over so many years, with about 15% repreenting a return of what you contributed.

Based on the info provided you are in the 12% tax bracket, so the tax on the 85% of your SS that is taxable will be 10.2% (12%*85%).

 

[mf15]

What used to make me mad. Is while the gov't sent the young boys off to die
in 1970. They still took medicare and SS taxes out of yor paycheck. LOL
Oldmike

 

[latexman]

Is it my fault I worked very hard during my 35 year career and climbed the difficult promotional ladder. 10 years serving every day on an ambulance (with Hep C as a result) and 20 years as a fire officer that I should have my benefits taxed? - Sorry, that was rhetorical, just had to rant

By William Goldman:

Life isn't fair. It's just fairer than death, that's all.

 

[Gumby]

You may find this post, and the links in it, helpful for confirming to yourself that 85% of your social security will be taxable.


https://www.early-retirement.org/fo...-income-levels-2021-a-106300.html#post2506932

 

[CRLLS]

Did you seriously expect that SS income would be tax-free when your other pension income is taxed? If so, your ire should be with yourself for being so uninformed.

You don't think that the rest of us who are paying tax on 85% of our SS didn't also work hard over a long career? You chose your career and we thank you for your service but when it comes to SS there is no preferential treatment.

The 85% broadly equates to the amount of SS from growth over so many years, with about 15% repreenting a return of what you contributed.

Based on the info provided you are in the 12% tax bracket, so the tax on the 85% of your SS that is taxable will be 10.2% (12%*85%).

To be honest, I was working for 14 years before they started taxing SS in 1984. It wasn't there when they started taking SS from my paycheck. Until one starts to plan their retirement, there is no reason for one to stay on top of all the rules. The rules are what they are, and we can't change them. Yes, it can come as a surprise to many. Especially for those who's parents may not have SS taxed. I know many on approaching government retirement that don't know or think about how it affects one's SS check either.

 

[BigBob]

I often see a major confusion: 85% of your Social Security being taxed does NOT mean your Social Security is taxed at 85%. Chew on that.

 

[Irishgirlyc58]

To be honest, I was working for 14 years before they started taxing SS in 1984. It wasn't there when they started taking SS from my paycheck. Until one starts to plan their retirement, there is no reason for one to stay on top of all the rules. The rules are what they are, and we can't change them. Yes, it can come as a surprise to many. Especially for those who's parents may not have SS taxed. I know many on approaching government retirement that don't know or think about how it affects one's SS check either.

So true!
When I went to work for a government agency that didn’t participate in SS I was young and cocky. I thought pfft- like SS will be around when I’m old enough to collect it.
I just tuned out anything about SS because it wasn’t going to apply to me.
Then I went to work for a different government agency that did participate in SS. It took me until I was about 53 ish to realize oh hey, I might be eligible to SS someday.
[emoji2356]

The things we think when we are young.

 

[Winemaker]

OP, check out the threads on the "tax torpedo", where your marginal tax rate jumps up substantially. It may pay off to take your 457 monies to bring your balance (or Roth convert) down, and take your SS later. Many snares ahead, many different options, none are easy and their are countless opinions and discussions about what to do, Good luck!

 

[athena53]

The 85% broadly equates to the amount of SS from growth over so many years, with about 15% representing a return of what you contributed.

I actually verified this % with my own calculations and SS history, but

1. High earners generally do not get a market return on what they put in. One very rigorous actuarial study calculates the annuity value of all the SS benefits (including COLA, Survivor, etc.) and for me it's about 75% of what I could buy in the open market.

2. If I'd personally invested mine and my employers' contributions, a lot of the investment gains would be LT gains or dividends and taxed at a lower rate, not as ordinary income.

3. Don't forget the other 15% of SS is added back in for MAGI used to calculate IRMAA adjustments for Medicare.

 

[Gumby]

...
3. Don't forget the other 15% of SS is added back in for MAGI used to calculate IRMAA adjustments for Medicare.

I don't think this is true.

See: https://sgp.fas.org/crs/misc/R43861.pdf at page 2-5, and
https://secure.ssa.gov/poms.nsf/lnx/0601101010


also, for help with the second above https://www.irs.gov/pub/irs-pdf/f1040.pdf

 

[aaronc879]

Now that is astounding! I had no idea. Apparently lawmakers have managed to screw me yet again.

Is it my fault I worked very hard during my 35 year career and climbed the difficult promotional ladder. 10 years serving every day on an ambulance (with Hep C as a result) and 20 years as a fire officer that I should have my benefits taxed? - Sorry, that was rhetorical, just had to rant

You can't seriously be talking about getting "screwed" when you get $72K/yr for not working all paid for by the taxpayers....

 

[Midpack]

I actually verified this % with my own calculations and SS history, but

1. High earners generally do not get a market return on what they put in. One very rigorous actuarial study calculates the annuity value of all the SS benefits (including COLA, Survivor, etc.) and for me it's about 75% of what I could buy in the open market.

2. If I'd personally invested mine and my employers' contributions, a lot of the investment gains would be LT gains or dividends and taxed at a lower rate, not as ordinary income.

3. Don't forget the other 15% of SS is added back in for MAGI used to calculate IRMAA adjustments for Medicare.

The fact that Soc Sec is a PAYGO system and always has been, makes all that moot. It's not invested on behalf of recipients, as you probably knew.

 

[TheWizard]

3. Don't forget the other 15% of SS is added back in for MAGI used to calculate IRMAA adjustments for Medicare.

No, it isn't...

 

[Major Tom]

I often see a major confusion: 85% of your Social Security being taxed does NOT mean your Social Security is taxed at 85%. Chew on that.

A lot of folk seem to be confused by these sorts of issues. Progressive taxation is another example. Some people seem to think that because the top Federal tax rate is 37%, this means that every dollar a high earner makes is taxed at that 37%. Not quite.