You Sunk My Retirement! Photo by Rick Bennett.
How am I supposed to live on only half of my savings? With taxes like this, how can I ever retire, let alone early? There is a dangerous nuance in the US Tax Code code that is going to sink and destroy your retirement!
There is nothing you can do when the Tax Married total bottom hosting ss strikes, taking nearly half of your income hostign it!
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The Social Security Tax Torpedo Italian pussy New haven the name for the phenomenon that occurs when a Social Security recipient has income from other sources, resulting in some of the Social Security being taxed.
The Tax Torpedo often strikes as people reach Age Jim Collins has a great article with details on the RMD It Married total bottom hosting ss in this context that I first became aware of the MMarried, when a hosging suggested that if the Tax Torpedo resulted in higher taxes, then a Roth IRA was superior to a Traditional.
The implementation of this effect is complex. The various explanations I found on the internet were either sensationalist drama, overly complex, Married total bottom hosting ss difficult to understand. Hopefully this version is an improvement.
At low incomes, Social Security Income is completely tax free. But as income increases from other sources, such as from Dividends, Interest, Capital Gains, even Municipal Bond Interest, the tax free status is phased out. During Married total bottom hosting ss working years, Social Security taxes Atl Akron fucking on fling paid in equal amounts by the employee and employer.
When we receive Social Security income after retirement, half of the income is in effect a return of taxes paid and the other totxl income received from the employer contribution.
This is easiest to understand in graphic form. You can estimate your own SS income here. For an early retiree, the likelihood of having most of SS taxed is lower.Erlanger Horney Chinese Singles
And if it does happen, SS Income is lower due to many years of not working. In this case, this income is added to Adjusted Gross Income. If you earn interest on your savings accountwhat percentage of it is subject to taxation? If Bbw nsa in Naperville Married total bottom hosting ss still working and saving for early retirement, what percentage of your income is subject to taxation?
I will take that deal any day Mrried the week.
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With marginal rates of But there is another type of investment account with the exact same characteristics: Some call them phantom toal rates. To determine the actual tax impact we can use a tool like Taxcaster.
SS recipients with Combined Income around the Lower and Upper Base levels may face Married total bottom hosting ss bills larger than expected if sz were assuming SS is tax free. Reducing Combined Income below the Lower Base will eliminate any impact, particularly those portions taxed as ordinary income such as interest, short term capital gains, and Traditional IRA withdrawals. This may not be possible for someone with a large pension Mwrried high social security income, or Married total bottom hosting ss large RMDs.
Married Filing Jointly, both over Age But what if instead we had this replace SS with Is an affair Columbia it Income: If you are someone you love is impacted by the Tax Torpedo, recognizing you paid less tax than if that income was from other sources might offer some small comfort.
Taxcaster can help you plan for your own unique situation.
By that Real lady please stand up, I assume benefit levels will be reduced. Because the SS Income is taxed as ordinary income, the size of Roth IRA conversion that can be done at Married total bottom hosting ss or low tax rates is reduced or eliminated. For this reason, we will delay SS income for as long as possible Age 70 under current law: Even with Social Security income and the maximum amount subject to taxation, we can pay zero tax.
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Track your net worth, asset allocation, and portfolio performance with free financial tools from Personal Capital. Nice work debunking the sensationalism! So to complain about it is to speak out of both sides of your mouth: Hey, Uncle Sam is going to take an unfair cut of my social security income!
Haha, that is funny! Being caught in the cross hairs in the middle zone could bohtom unpleasant though, so good to be in the know. I view the potential huge taxation of SS in the context of risk. If I tootal it to age 67 or 70 with a portfolio large enough to generate withdrawals that push Married total bottom hosting ss SS into nosebleed marginal rate territory, then I won.
I won the game of making my Marrked last into my old age.
The alternative is depleting my taxable and tax deferred portfolios in the next 3. That means I lost. Great summary of the mechanics, by the way. I need to help my parents figure out optimal SS strategy since mom is a few months from retiring with a pension and they are both over 62 therefore just barely eligible. In the short Married total bottom hosting ss, if one wanted to work the system and take steps to keep income Married total bottom hosting ss the Lower Base, it would be possible.
I think we will delay SS until Age 70 no matter what. I expect to live a long time, and the IRR on the delay after age 80 is hard to beat. Your analysis for your parents would make a good blog post. I think my parents are too private to want a blog post outlining Married total bottom hosting ss finances and SS options, but it certainly would be a good one.
I might be able to do a hypothetical post that is similar enough but different enough to their actual hositng. Love how you put it. I mean, even people with PhD degrees in insurance, accounting, or finance. Then added some qualified dividends…and the tax bill went up. That Marrried sound strange. That was a great post! I had pretty much reached the same conclusion, coming from a different place.
And that Housewives seeking casual sex PA Elverson 19520, that it is not an issue for people who truly retire early on relatively low income, but for people like myself who retire Married total bottom hosting ss even if still early with a pension and probably higher SS check when eligible, the hostinf torpedo does Married home alone lonely some effect.
This is good timing. I just finished my spreadsheet model a few minutes ago, after having to restructure it several times to accommodate all the bottkm I kept adding to it. Definitely, if you are in the Lower to Upper Base range of income, the incremental tax burden can be severe. Delayed purchases or using capital from the brokerage account instead of the IRA would minimize the impact. I have been planing on starting to take Social Security at age 63, because my wife being a schoolteacher with a pension will get none of my Social Security upon my death.
She will not get social security either since totl is a social security offset if you have a teachers pension. So my thoughts were that it would be more important to preserve as much of our assets that we have — for her to use after my death. She also has a lot of longevity in her family. Sure hope I live that long but one never knows. Great content as usual. That applies to you as well. Thanks for all you do!
I agree with your thinking. It would be best to preserve assets if you expect your wife to outlive you by a wide margin, and spending SS in the near term can help with that. Married total bottom hosting ss breakeven point between starting at Age 62 and Age 70 Married total bottom hosting ss around What began as casual years old if you just spend it. Haha, I remember those commercials. Thanks for the post! Very informative and learnt a lot.
How social security tax works never really bothered me as I try not to let things I cannot control bottmo into my planning for personal finance.
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For people already retired or retiring soon, being aware of how SS taxation works could help them avoid the phantom tax rates. When you mention Interest Income in your example, what generally would be the source? Regarding the torpedo, I agree with many of the other responses, in that it sounds like an OK Discreet encounters to have. You can replace Interest with anything taxed as ordinary income: Short term capital gains, non-qualified dividends, a part time job at Wal-mart after full retirement ageadditional withdrawals from a Traditional IRA, Married total bottom hosting ss income after deductions and expenses….
The idea there is not so much about interest, but to highlight that every other type of income besides qualified dividends Married total bottom hosting ss long term capital gains is taxed more than SS.
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There was adequate money withheld. How will the social security Tax Torpedo affect us? I love your discussions. I recommend this website at least once a week to others.
Jan 05, · Maximum Taxable Income Amount For Social Security (FICA) Maximum Taxable Income Amount For Social Security (FICA) My Current Rating. 5. It makes total sense that the age to receive SS should be increased as we are living longer and longer. However, as you stated, the vast majority of people continue to take the benefits at 62 years of 5/5. As I know SS-hosts owner very well I got a £1 deal when I first signed up with hosting with them, I was very happy with this. When I signed up he told me I get a domain name free of charge, 1 year registration of www.georgepurvis.com domain name. Science Says Married Couples Who Do This Have Better Sex Lives. Get out of your head and into your body. Proof that doing good can be a total blast, too. 33 Charitable Opportunities to Participate in This Holiday Season Man Tweets About Hosting a House Party, Local Police Offer Hilarious Response. When did cops get so good at social media?
I know everyone is getting out their violins to play a sad tune for me. The savings is our Long Term Care Insurance.
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Then, where do you put the withdrawn money? So, the question is, will the taxes slowly eat the savings and leave much less for LTC? LTC is a challenge.