Pension Deductions

[kenmck02]

Looking at ER in about two years at age 57. Will I have SS and Medicare withheld from my non-cola'd pension check? DW and I (same age) intend to take our SS at 62. Any experts out there?

 

[Dreamer]

I am definitely not an expert, but you will not have SS or Medicare withheld from your pension check. SS and Medicare are withheld from your earnings as an employee or self-employed person, not on your unearned income, pension.

 

[W2R]

Hi, kenmck02.

I don't know about pensions in general, but I can tell you about mine. My annuity(pension) check from the federal government does not have SS or Medicare deductions.

 

[bbbamI]

I'm not an expert on all pensions, but our pension check does not have SS or Medicare withheld. We get a pension from megacorp. You should be able to find out by talking to HR regarding your pension.

 

[MasterBlaster]

SS and Mdicare taxes are taken from "earned" income - ie. paycheck income. Those are the so-called payroll taxes.

Pension income is usually only taxed as ordinary income. However if you contributed after tax money towards your pension then some of it will not be (income) taxed. The relative amount of income taxes you will owe depends on your plan and how much you contributed.

 

[Amethyst]

OP,

In your place, I would ask your HR department about what gets deducted from your company's pensions. At least, they will be able to tell you who processes/pays your pension, and then you can call those people with your specific questions.

Congratulations on being so close to retirement!

Amethyst

 

[clifp]

Looking at ER in about two years at age 57. Will I have SS and Medicare withheld from my non-cola'd pension check? DW and I (same age) intend to take our SS at 62. Any experts out there?

The short answer is no, and the longer answer is depending on what state you living in they may not even be considered taxable income for your state. Ain't retirement grand

 

[MasterBlaster]

The short answer is no, and the longer answer is depending on what state you living in they may not even be considered taxable income for your state. Ain't retirement grand

The key words there are "for your state".

So what that means is that your state may (or may not) tax your pension or at least give you a partial break. However the Feds won't be so kind and will consider it (mostly) as taxable income of which you'll owe taxes.

 

[kenmck02]

Thanks to all responders

The news looks good. I'll talk to HR. And thanks also for the link to the states' handling of pensions. I appears that Alabama exempts certain private defined benefit pensions. Maybe I'll get lucky on that end as well. Thanks again, Ken

 

[kenmck02]

I fully understand the ordinary income aspect of the pension. What I wasn't certain about was whether SS kept getting their cut until one starting drawing benefits at 62 or 65 or 67, etc. Ken

 

[Stevewc]

The only tax I pay on my pension is federal.
Even federal will be reduced because some of the money I contributed was taxed at the federal level in the early years I worked for mega corp. Then later years were deducted before taxes.
Steve

 

[Bikerdude]

No SS or MC tax on pensions.

 

[Nords]

Will I have SS and Medicare withheld from my non-cola'd pension check? DW and I (same age) intend to take our SS at 62. Any experts out there?

If the strength of your ER planning rests on being able to take SS at 62 then you might want to reconsider. Or more specifically, the spouse with the longer longevity and lower earnings record might want the other spouse to reconsider.

A more flexible & survivable ER plan (with a higher margin of safety) would give you a bit more flexibility in deciding when to take SS.

Take a look at Bud Hebeler's articles on SS election:
Please title this page. SOCIAL SECURITY AT AGE 62?

When to start social security

http://www.analyzenow.com/Articles/...tiree take Social Security at 62. 7-14-09.htm

http://www.analyzenow.com/Articles/...rt Social Security at 62, 66 or 70 5-9-02.pdf

 

[kenmck02]

SS payments at 62 are not included in our ER plan, in fact, they are not included in our ER plan at all, at any age. I simply included that info to explain we would be 7 years short of being able to draw SS in asking whether SS and Medicare obligations were still required of my pension. The decision to take SS at 62 will most likely come down to whether or not we feel at that time the program will survive in current form until we reach 65 or 67. Thanks, Ken

 

[W2R]

The decision to take SS at 62 will most likely come down to whether or not we feel at that time the program will survive in current form until we reach 65 or 67. Thanks, Ken

Ken, I can sure relate to that factor in your decision. I will be 62 in June, and I am still considering taking SS at that time due to my uncertainties about the SS program, even though I had originally planned to take it at 66. I think I will play it by ear, and not take it right away but I could change my mind at any time.

 

[travelover]

My thinking is, get all you can as soon as you can. They simply have to means test SS in the future - and probably Medicare, as well..

 

[rescueme]

Ken, I can sure relate to that factor in your decision. I will be 62 in June, and I am still considering taking SS at that time due to my uncertainties about the SS program, even though I had originally planned to take it at 66. I think I will play it by ear, and not take it right away but I could change my mind at any time.

Not to take the thread off course, but as for the question of taking SS at either 62 or 66, it's a bit easier for somebody who is not married.

You don't have the worry (assuming you are the higher wage earner during wor*ing years) that your wife will have enough, assuming you pass first.

Also, you can't take advantage of the 50% spousal SS claim when the spouse is FRA age.

If I was single (and only responsible for myself) I would take it as soon as I could (and I can - I'm 62). However for the benefit of my wife, she will take it at 62, I'll claim against her for the 50% benefit when she turns 66 (we're within a couple months of age), and then I'll claim mine at age 70.

It all depends on your situation...

 

[tightasadrum]

This is a useful thread. And thanks Nords for the great links. I'm reminded of the response that Mr. Bogle gave to an inquiry of the same topic. His answer was simple, and I've decided to follow his advice: If you don't need the SS money to live on, then wait until you do need it. He apparently started his at 70.

I've also followed this plan in my non-COLA'd mega-corp pension, although I will probably start taking it at 65 since that's when it hits its maximum payout.

 

[Walt34]

I will be 62 in June, and I am still considering taking SS at that time due to my uncertainties about the SS program, even though I had originally planned to take it at 66. I think I will play it by ear, and not take it right away but I could change my mind at any time.

I'm only a couple of years behind you and having the same thoughts. Grab it while it's there, or wait and see if the wait is worth it.

For now, while I'm still working and we wouldn't use the income anyway I'm inclined to wait for a larger benefit later. But this is now, and that is then. Circumstances can change, sometimes abruptly.

 

[ziggy29]

I'm only a couple of years behind you and having the same thoughts. Grab it while it's there, or wait and see if the wait is worth it.

I firmly believe it's inevitable that SS will become a worse deal for folks in the future (one way or another, whether added means testing, increasing eligibility ages, reduced payments). But I also tend to believe that no one already collecting SS will be asked to share the pain. So yeah, I'd get in at the first chance to reduce the chances that "reforms" would screw me later.

 

[Bikerdude]

If I was single (and only responsible for myself) I would take it as soon as I could (and I can - I'm 62). However for the benefit of my wife, she will take it at 62, I'll claim against her for the 50% benefit when she turns 66 (we're within a couple months of age), and then I'll claim mine at age 70.

It all depends on your situation...

Exactly. You have to run your own numbers. In my case, I'm saving more in taxes (by taking SS at 62) than the annual yearly increase in SS benefits for delaying. Add to that what my IRA money is making and I'm way ahead. Do your numbers.

 

[MasterBlaster]

In my case, I'm saving more in taxes (by taking SS at 62) than the annual yearly increase in SS benefits for delaying.

Would you care to enlighten us of the details here ! As I recall delaying by a year gives around 8 percent more SS (COLA-ed) payment some of which is not taxed. That's hard to beat year end and year out.

 

[W2R]

Exactly. You have to run your own numbers. In my case, I'm saving more in taxes (by taking SS at 62) than the annual yearly increase in SS benefits for delaying. Add to that what my IRA money is making and I'm way ahead. Do your numbers.

The numbers (for me) clearly say to take it at 66 as I can balance my taxable income in other ways, and my expected longevity far exceeds the median (as is true for many women).

But my point was the same as that of the OP, which is that numbers aren't all that we must consider these days. There is the huge unknown as to what will happen with SS. Like Ziggy says

I firmly believe it's inevitable that SS will become a worse deal for folks in the future (one way or another, whether added means testing, increasing eligibility ages, reduced payments). But I also tend to believe that no one already collecting SS will be asked to share the pain. So yeah, I'd get in at the first chance to reduce the chances that "reforms" would screw me later.

 

[Bestwifeever]

Would you care to enlighten us of the details here ! As I recall delaying by a year gives around 8 percent more SS (COLA-ed) payment some of which is not taxed. That's hard to beat year end and year out.

In our case, DH opted to start receiving his pension last summer (foregoing a couple hundred dollars a year had he waited til 65) because it replaces money we would have taken from our IRA (and thus paid tax on it plus losing the earnings on it). We may take SS as early as possible for the same reason.

 

[Bikerdude]

Would you care to enlighten us of the details here ! As I recall delaying by a year gives around 8 percent more SS (COLA-ed) payment some of which is not taxed. That's hard to beat year end and year out.

No problem. All my investments are in IRA's so any withdrawal is a taxable event. If I take SS I do not use IRA money. If I take SS equivalent from IRA fed tax is $2,850. In my case this would also trigger $1,431 in state taxes for a total of $4,281. By taking SS my tax is $900 fed and no state income. So $4,281- $900 = $3,381 in tax savings plus interest earned on IRA assets @ 4% = $760 for a total saved of $4,141.

SS of $19,000 x 8% = $1,520.