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BANGKOK 19 June 2019 05:40
sirineou

US. income tax after retirement.

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I should have started thinking about this earlier in life, but here I am. 

I will be turning 62 next month and was thinking about retiring in the next few months and applying to receive Social Security (SS)  benefits. (I know there are is a three month waiting period).

I started reading about SS   and if I understood what I read correctly , when receiving SS income , anything up to 32k usd you pay  0% tax (married ,filing jointly) . From 32k-  44k  50% !!!!!, so if I understand this correctly after 32k on the next 12k I will pay 50% or 6k in taxes?  and then on anything over 44k I will pay 85% tax?

I must have misunderstood, this can't be right.

I  will have income other than SS (Union Pension, Annuity, rental income, wife makes pretty good money) 

If I applied for SS I will be receiving a litle less than $1,500 per month at age 62. Is it even worth applying for SS if it will put me in a 50-85% tax bracket, for 18,000 per year?  

I can't be understanding this right. If any of you who are collecting SS could enlighten me I would appreciate it, 

Thank you all in advance.

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7 minutes ago, ubonjoe said:

Not correct according to that webpage.

"You will pay tax on only 85 percent of your Social Security benefits, based on Internal Revenue Service (IRS) rules. If you:

  • file a federal tax return as an "individual" and your combined income* is
    • between $25,000 and $34,000, you may have to pay income tax on up to 50 percent of your benefits.
    • more than $34,000, up to 85 percent of your benefits may be taxable.
  • file a joint return, and you and your spouse have a combined income* that is
    • between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits.
    • more than $44,000, up to 85 percent of your benefits may be taxable."

Ok, So I think I now understand.

 for up to 32k I pay no tax

for over 32k and up to 44k 50% of my SS income is taxed at the appropriate tax bracket which is about 12% 

image.png.03134d20a2edecbf6bfa5c7b592c898b.png

 

Then for over 44k combined income 85% of my SS income would be taxed at my tax rate and since my combined income will not be over 77k it should remain at 12%

After the 12% of tax on SS income I will also have to pay tax on the additional amount in my combined income.

If I understood this correctly , then it is not so bad, I should calm down and put the Pitchfork away LOL

 

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Posted (edited)
27 minutes ago, GinBoy2 said:

I think that is the crux, the OP is misunderstanding the amount that is taxable, versus the tax rate

Yes indeed

I thought  SS would be taxed at 50% (embarrassed) 

I now understand that it is 50% of the SS income that would be taxed at my particular tax rate which seems to be 12%

so  18000x50%= 9,000x12%=1,080 about, there might be other variables that could make it a litle more ot a litle less. 

image.png.c06c0f6eb42e8798b92de2d169739464.png

 

 

Edited by sirineou
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10 minutes ago, sirineou said:

Yes indeed

I thought  SS would be taxed at 50% (embarrassed) 

I now understand that it is 50% of the SS income that would be taxed at my particular tax rate which seems to be 12%

so  18000x50%= 9,000x12%=1,080 about, there might be other variables that could make it a litle more ot a litle less. 

image.png.c06c0f6eb42e8798b92de2d169739464.png

 

 

It happens to the best of us, so don't feel bad.

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7 hours ago, sirineou said:

Ok, So I think I now understand.

 for up to 32k I pay no tax

for over 32k and up to 44k 50% of my SS income is taxed at the appropriate tax bracket which is about 12% 

image.png.03134d20a2edecbf6bfa5c7b592c898b.png

 

Then for over 44k combined income 85% of my SS income would be taxed at my tax rate and since my combined income will not be over 77k it should remain at 12%

After the 12% of tax on SS income I will also have to pay tax on the additional amount in my combined income.

If I understood this correctly , then it is not so bad, I should calm down and put the Pitchfork away LOL

 

yes, getting SS benefits does not put you in the 85 per cent overall tax bracket as you first asked about.  Depending on your overall Adjusted Gross Income AGI, actually MAGI which adds in even tax free income such as from municipal bonds, more of your social security tax may be subject to taxation at whatever tax bracket you are in.  Note that MAGI thing.  Which is a reason to have a ROTH or maybe convert some of your 401 k or traditional IRA monies to a ROTH before you start taking social security.  It becomes all about juggling income and overall tax bracket rate

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Posted (edited)
9 hours ago, timendres said:

You are absolutely correct: https://www.ssa.gov/planners/taxes.html

 J

So, it makes sense to delay taking your SS benefits, which only means they will be worth more later, if and when you really require them.

The SS benefits increase about 8 per cent every year you wait past 62.  So depending on your income and needs, it may be beneficial to delay taking SS.  I just turned 62 myself but am still working and even when I stop working after this year, I will still delay taking SS for a few years.  My main reasons are as follows.

1:  The SS benefit increases about 8 % each year. That's a pretty decent return.

2.  I don't need the income at this time as I have other passive income coming in

3.  I want a few years where I am in a lower tax bracket then when I was working because I am going to convert my traditional IRA monies that I dodged taxes on while I was making 150 k a year and convert those while I am showing about 50 k a year.  And all those years I dodged paying high fed taxes on my 401k  monies I also dodged paying state income taxes.  The nice thing about retirement is I don't need to try and save much money, so that is not in the budget and I can easily live on 50 k a year or about 4000 USD.  Plenty of cash flow to enjoy 6 months a year in Thailand and Florida and Southern California.  Then in a few years start the SS benefit.  My starting benefit is coincidentally right now at 2000 a  month which is just about what is needed for the Retirement extensions in Thailand.

Edited by gk10002000
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16 minutes ago, gk10002000 said:

The SS benefits increase about 8 per cent every year you wait past 62.  So depending on your income and needs, it may be beneficial to delay taking SS.  I just turned 62 myself but am still working and even when I stop working after this year, I will still delay taking SS for a few years.  My main reasons are as follows.

1:  The SS benefit increases about 8 % each year. That's a pretty decent return.

2.  I don't need the income at this time as I have other passive income coming in

3.  I want a few years where I am in a lower tax bracket then when I was working because I am going to convert my traditional IRA monies that I dodged taxes on while I was making 150 k a year and convert those while I am showing about 50 k a year.  And all those years I dodged paying high fed taxes on my 401k  monies I also dodged paying state income taxes.  The nice thing about retirement is I don't need to try and save much money, so that is not in the budget and I can easily live on 50 k a month or about 4000 USD.  Plenty of cash flow to enjoy 6 months a year in Thailand and Florida and Southern California.  Then in a few years start the SS benefit.  My starting benefit is coincidentally right now at 2000 a  month which is just about what is needed for the Retirement extensions in Thailand.

Thank you for that advice ,

I certainly will think about all this.

Since I asked this question I have used this day researching the Issue, though I am not yet certain of what is the best way to go, and certainly need to study the issue more, some advisers have a different take on the issue than you.

They say that regardless of when you start SS on the average everyone will get the same amount in the end.

Less at 62 but three year longer

more at 65 but three years less,

A point that was made is that though my SS will die with me, 

My retirement account will not, So it might be best to live on income that will die with me if I can afford it, such my SS and pension, and leave my annuity along  for my wife after I die. 

Another option that was presented to me was that I take a reduced amount  of my work pension and my wife keeps it for life, but I don't trust this option because unions are under attack in the US and I don't know how long my union pension fund will be fully funded,, It is insured but only at 60% so I think it is better to get it now while the getting is good.

Anyway a lot to think about.

Thanks again.

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The future of social security does not bode well. Unless you've a specific reason to put off the benefit, I'd take it. Even then it's dicey. I don't see how it can survive without a drop or hold in benefits as well as helicopter money + inflation. From what I've read those that postpone benefits don't end up with all that much more if any money. Then you have the issue of death before you take your benefit. I had a very wealthy aunt who must have paid a Kings ransom into SSI. Took her benefit at 70. At 71 diagnosed with terminal cervical cancer. Another aunt took benefit at 62. Died at 73 from lung cancer. Jus sayin.

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Posted (edited)
5 hours ago, Number 6 said:

The future of social security does not bode well. Unless you've a specific reason to put off the benefit, I'd take it. Even then it's dicey. I don't see how it can survive without a drop or hold in benefits as well as helicopter money + inflation. From what I've read those that postpone benefits don't end up with all that much more if any money. Then you have the issue of death before you take your benefit. I had a very wealthy aunt who must have paid a Kings ransom into SSI. Took her benefit at 70. At 71 diagnosed with terminal cervical cancer. Another aunt took benefit at 62. Died at 73 from lung cancer. Jus sayin.

I've had a similar discussion with myself about this. 

 

My Dad lived to 89, yet my Mom was dead at 66 after a botched hip replacement, it's really roll the dice time

 

I'm thinking 64 is a good compromise age. I worked it out at 64 I'd get $150 less a month than if I waited to 66.

I can live with that

Edited by GinBoy2
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Just my 2 satang, the hip replacement doctors love $$$. Old folks just never quite recover - from the surgery. Two relatives also died after hip replacements.

 

I think I'd read recently 10,000 Americans retire each day - boomers. They're going to have to inflate the money supply. Especially if Dems grab control of Congress.

 

All bits of paper.

 

 

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