I just turned 70…
Which means I’ll be receiving a special “birthday gift” from Uncle Sam for the first time.
Yes, I’m talking about my first Social Security check.
Even though I could’ve started taking Social Security eight years ago, I decided to wait until now since I’m still working and don’t need the money now.
Which is great because now I’ll get the maximum amount possible.
So, I’m glad I waited…
And I was even happier when I heard that in January, we’ll see an 8.7% increase in our Social Security checks with the cost-of-living adjustment (COLA) – the largest increase since 1981.
On the surface that sounds like great news, right? I mean, who wouldn’t want a bigger Social Security check?
However, the devil is in the details, especially when it comes to retirement income, government benefits, and taxes!
Yes, the same hand that giveth, also taketh away…
Many people aren’t aware that it’s common to owe taxes on your Social Security benefits. Currently, if a couple makes over $32,000 (from retirement account withdrawals and other sources), 50% of their Social Security income gets taxed.
If a couple retires with an income above $44,000, up to 85% of their Social Security benefits are taxed!
I know this doesn’t sit well with many of the retirees we work with. I hear it all the time:
“What? You’re telling me all those mandatory contributions I was forced to make to the government for all my working years are also going to be taxed in retirement?!”
Yes. Unfortunately, that’s our reality.
But it wasn’t always like this…
You see, Social Security benefits weren’t taxed initially. But in 1983, Congress decided that up to 50% of benefits could be included in taxable income. Later, they raised the percentage to 85% for higher-income folks.
Plus, when the government introduced these changes to Social Security in the 1980s, they made a big mistake: they completely ignored the impact of inflation.
In other words, they did not index the thresholds to inflation. This means that tax bills get higher as inflation gets higher each year.
This “government goof” has hurt millions of Americans. When this was introduced, only 10% of Americans broke the income thresholds that require tax payments on their Social Security benefits.
Today over 50% of Americans pay taxes on their Social Security benefits. And this big cost of living increase will only bump millions more people into an income bracket where they’ll also owe taxes on their Social Security.
Taxes On Social Security Benefits Are Just the Tip of The Iceberg
Your Social Security benefits aren’t the only taxable income you have to worry about… a higher taxable income can make your Medicare premiums go up, too.
I know… I know… I’m full of good news today, aren’t I?
But this is important for you to know…
The IRS uses income reported on your federal tax return to determine the size of your Medicare premium payments. And a big cost-of-living increase, like the one happening in two months, can bump you into a higher premium payment. That can mean up to a 350% increase on premium payments.
But Wait, There’s More (Taxes!)
As you know, you also have to pay income tax on withdrawals from any tax-deferred accounts, investments or pensions. This includes any withdrawals you take from traditional IRAs, 401(k)s, 403(b)s and similar government-controlled retirement plans, and tax-deferred annuities.
So to recap…
- The 8.7% cost-of-living-adjustment (COLA) increase on Social Security will knock millions of seniors into a higher tax bracket
- The COLA may also trigger higher Medicare payments
- The IRS will continue to take a big tax bite out of your traditional 401(k) and IRA retirement account withdrawals
After all that, how much money will you actually have left over to live on in retirement?
For many, the answer is “not enough.”
Fortunately, There’s a Better Way…
There’s a way to structure your retirement income to minimize or even eliminate all these hefty taxes and costs. And this is something a highly trained Bank On Yourself Professional specializes in.
It’s called the Bank On Yourself safe wealth-building strategy, and it allows you to:
- Pay your taxes up front… so you legally pay ZERO taxes on your retirement income (no nasty surprises like the ones mentioned above) https://www.bankonyourself.com/bank-on-yourself-tax-advantages.html
- Legally avoid paying capital gains tax (because a Bank On Yourself plan isn’t considered an investment)
- Take income in retirement that’s essentially “invisible” to the IRS when they calculate how much taxes you’ll owe on your Social Security benefits (unlike the income you take from a 401(k), 403(b), or IRA)
- Also potentially reduce your Medicare premiums by up to two-thirds since the income from your Bank On Yourself strategy will not make your premiums go up
Get a Free Analysis To Help You Avoid These Surprise Retirement Taxes
If you’re interested in learning more about how adding the Bank On Yourself strategy to your financial plan can help you KEEP more of your hard-earned money, just click the link below to schedule a FREE, no-obligation Analysis today:
Simply answer the questions on that page and a Bank On Yourself Professional will be in touch with you to show you how you can legally protect your retirement income from being taxed. They can also show you how a Social Security “bridge” strategy can enable you to use other assets to delay taking Social Security until as late as age 70, when you can claim your largest possible benefit.
Since I’m in a nostalgic mood lately because of my birthday, I’ll leave you with one of my favorite quotes…