Are You Planning On Those Social Security Taxes in Retirement? By Bill Eager
Are You Planning 0n Those Social Security Taxes in Retirement? by Bill Eager
As per Bill Eager, Many federal employees have worked hard throughout their careers with the aspirations of retiring and living the rest of their lives comfortably. They have consistently set aside money into their retirement plans to help their dream of a stable retirement come true by Bill Eager.
They are also making plans to receive their Social Security benefits as part of their retirement income as per Bill Eager.
However, many forget to consider the taxes that Social Security benefits are usually liable for. This is a mistake that can cost you a significant amount of money under a retirement budget.
If a single filer has a combined income (which is made up of 50 percent of their annual Social Security benefits, non-taxable interest, and adjusted gross income) of $25,000 to $34,000, they are liable to pay taxes on 50 percent of their SS benefits. For joint filers, you face 50 percent liability if your combined income is $32,000 to $44,000 a year.
As per Bill Eager for single filers that have a combined income of over $34,000, up to 85 percent of your SS benefits will be taxed. For joint filers, this also includes you if you bring in over $44,000 a year.
Let’s go over a scenario of how this can negatively impact you if not careful:
John is an unmarried, retired federal worker. He has a combined income of $33,000 a year. However, during a particular year where he goes on a trip to the Caribbean, he takes an extra $2,000 out of his Thrift Savings Plan to cover extra expenses. This brings his annual income to $35,000, which puts him in a category to pay up to 85 percent of his Social Security benefits instead of the usual 50 percent.
He will also face taxes on his TSP withdrawal as well, as it is a traditional tax-deferred account.
More often than not, federal workers will likely have to pay taxes on their Social Security payments. However, there are some things they can do to reduce their taxable earnings during retirement to lessen the impact of taxes.
The first strategy is to save into a Roth TSP. Since money is put in after-tax, the funds withdrawn in retirement will not be liable to taxes. This can be big savings for those that have a lot of money tucked away into a tax-deferred retirement account.
Many Americans are told and think that they will be in a tax bracket below where they are currently. However, this is especially not true for most federal workers as more than 96 percent of them are under the Federal Employees’ Retirement Plan. This means their retirement income will come from their annuity, traditional TSP account, and their SS benefits, which are all liable to taxes.
On top of that, a majority of people do not tend to lower their cost of living when they are retirees.
These are the reasons why many federal workers will have the same tax rate in retirement as they were when working.
This is why it is in your best interest to add strategies to your retirement planning now to lower the taxable earnings that you will have as a retiree.
For your retirement planning, Bill Eager said be sure that you research all the financial decisions you make as much as possible, as they will have a lasting impact throughout your retirement years.
