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Millions of older Americans depend on Social Security to pay their bills in retirement. In fact, 21% of married seniors and 44% of unmarried seniors rely on these benefits for 90% or more of their income.
If you expect social security to be a major source of retirement income for you, it is important for you to understand how much money you will earn from these benefits. Although you can estimate your monthly benefits by looking at your last pay statement (which the Social Security Administration will send you if you are 60 or older, or you can access it online), keep in mind that the amount intended to collect may not be yours to keep in full. It's because social security income is taxable at retirement for some seniors. Here's how to know what to expect for your benefits.
Source of the image: Getty Images.
Will you pay taxes on your social security income?
If your social security benefits will be taxed, it will depend on your total income and where you live during your golden years. Let's talk about federal taxes first. If your benefits are about your only source of retirement income, they will probably not be taxed. But if you have other sources of income, such as an IRA, 401 (k), a pension, or income from a business or a part-time job, it It is very likely that you will owe federal tax on your benefits.
To see if this is the case, you will have to calculate what you call your provisional income. To do this, take your non-Social Security income, including the non-taxable income you collect (such as municipal bond interest), and add 50% of your Social Security benefits. If your total land is between $ 25,000 and $ 34,000 and you are a single filer, or between $ 32,000 and $ 44,000 and you file joint tax returns, then you could be taxed on 50% of your land. income from Social Security. And if your provisional income totals more than $ 34,000 as a single filer, or more than $ 44,000 as a couple filing together, then you could be taxed on up to 85% of your benefits.
Where you live, it also counts
Although the income guidelines above dictate whether you will be taxed on social security at the federal level, you may also be subject to tax from your taxes. There are 13 states that tax social security to different degrees:
- Colorado
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- North Dakota
- Rhode Island
- Utah
- Vermont
- West Virginia
Of these 13 states, Minnesota, North Dakota, Vermont and West Virginia are the only ones that do not offer an exemption for low- and middle-income seniors. If Social Security is your main or only source of retirement income, and you live in Colorado, Connecticut, Kansas, Missouri, Montana and Nebraska. New Mexico, Rhode Island or Utah, chances are you'll stop paying taxes on your benefits.
Do not be caught off guard by taxes in retirement
Of course, Social Security is only one source of income on which you could be taxed during your retirement. If you have savings in a traditional IRA or 401 (k), withdrawals from this plan will also be subject to tax. This is usually the case if you collect pension payments, but not always. And of course, if you work, you will pay taxes on your salary, as you have done throughout your career.
The delivery? Know what income you will be taxed during your golden years and plan accordingly. The last thing you want to do is estimate your annual retirement income, forget about your taxes and end up with a lot less money – and a lot more worries – than expected.
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