Social Security question

[Zeke]

I hope you signed up for Medicare or have been insured since turning 65. Medicare assigns a lifetime penalty of 10% per year of not signing up unless you can prove you were covered. While 10% might not seem much over the basic cost ($160ish, maybe less for folks at 65), 30 % after year 3 hurts.

When you take your benefits is up to you and you get credit for each year not taking them after 65 but Medicare is not an option, you must take it and pay for it unless you get a Medicare advantage plan, in which case many providers pick up your costs. Part A is no cost and is automatically in force from the time you reach 65. You still have to contact them.

[Sooner or later]

Excellent point, Zeke.

[Zeke]

Originally Posted by Sooner or later

Combined income is defined as:
Your adjusted gross income
+ Nontaxable interest
+ ½ of your Social Security benefits

Below $25,000 combined income the SS income will not be taxed federally. Above $25,000 the following applies.

https://www.ssa.gov/benefits/retirement/planner/taxes.html#:~:text=between%20%2425%2C000%20and%20% 2434%2C000%2C%20you,your%20benefits%20may%20be%20t axable.

Some of you have to pay federal income taxes on your Social Security benefits. This usually happens only if you have other substantial income in addition to your benefits (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return).

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.

Brutal as that sounds, the tax is based on your bracket. It can be a small amount. And then there's the standard deduction of $12,500 per person.

[Sooner or later]

Originally Posted by Zeke

Brutal as that sounds, the tax is based on your bracket. It can be a small amount. And then there's the standard deduction of $12,500 per person.

That is correct. It is not a 50% or 85% tax rate. It is 50/85% of your SS benefit that can be taxed at your tax rate.

[KFC911]

Future RMDs (taxable income) later also figured into my decision fwiw.

[jcommin]

Originally Posted by KC911

Future RMDs (taxable income) later also figured into my decision fwiw.

I'm 72, still working, drawing SS and this is the 1st year I must take an RMD. I have an advisor walking me thru all of this. This changes next year as I am retiring at the end of this year.

[wdfifteen]

Originally Posted by KC911

Future RMDs (taxable income) later also figured into my decision fwiw.

RMDs are getting a little bit off the subject, but I paid my first RMD last year. I hadn't paid much attention to the rules regarding my traditional IRA before, but I had to do some learnin' to calculate my RMD. Turns out you can donate to a qualified 501c3 straight out of your IRA without ever paying taxes on it (and it qualifies as part of your RMD). This is available once you are 59 1/2. For 12 years I've been earning money, paying the taxes, and then donating it.

[/I]!

[Sooner or later]

A other benefit with a Roth. No RMD required.

[KFC911]

Originally Posted by Sooner or later

A other benefit with a Roth. No RMD required.

Roths never made sense (cents ) for my situation.... and the RMD aspect isn't "that" far off-topic as the required distributions may have significant implications to deferring SS & taxes.

My advisor is JG Wentworth .....

"It's MY money and I want it NOW!"

[wdfifteen]

Originally Posted by KC911

... the required [RMD] distributions may have significant implications to deferring SS & taxes.

Would you elaborate please? They do have implications (the money is taxable), but I don't see a lot of wiggle room. "You takes your RMD and you pays your taxes."

[MBAtarga]

Only earned income has an impact on SS benefits and whether any of it is taxed.

[KFC911]

Originally Posted by wdfifteen

Would you elaborate please? They do have implications (the money is taxable), but I don't see a lot of wiggle room. "You takes your RMD and you pays your taxes."

I try to keep my income as low as possible .... for several reasons, including taxes. If I deferred SS until 70-ish and begin substantial RMDs at that time too.... Uncle $ammy would be pleased. I also took 72(T) distributions after leaving the corporate world 15 years ago while keeping the taxes to a minimum as I coasted along (reinvesting most of the withdrawals). Hell .... I could be wrong tho'...

Being single and paying the max into SS for years, I just wanted to get something back rather than croak at 69 and get doodly-squat .

Of course the gov. suggest that you defer .... just like banks tout their CCs imo....

[Superman]

Originally Posted by KC911

..... running the numbers ....

For me, "full" retirement age is 66.5. Benefits are more than if I had started taking income at 62, and less than if I waited until 70. When running the numbers, you should consider all the income you would lose if you waited longer to get the higher monthly amount. Obviously. So....by the time I turn 70, I will have received $XXX,XXX.XX in income by starting payments at "full" retirement (age 66.5).

But lots of people fail to do the next step in math, which accounts for the time value of money. An interest rate should be used to bring that $XXX,XXX.XX to a 'present value' as of the last day of my 70th birthday month. This increases the mathematical and economic value of starting payments before age 70.

Then, of course, one would find the "break even point." The point at which, if one lives long enough, they will have received more money by waiting until 70 for the higher monthly amount. But again......the decision-maker should also consider the value of having the income at age 66.5, 67, 68 and 69.

In other words, the "beak even point" calculation is only one part of the analysis. In my view.

Also, when we turn 65 we MUST either sign up for Medicare or, alternatively, be covered under a private medical insurance policy that meets certain criteria. Failure to satisfy this requirement carries a financial penalty when you do sign up for Medicare after 65.

[monoflo]

The thing to me about waiting until 70 to take it ----is the great unknown about aging. I took SS about a year early (from full retirement). I subsidize it with personal funding. I'm comfortable.

Take your spousal amount into consideration also -- and for some the spousal benefit is nice -if you were a strong earner and married to a lower wage (social worker in my case) -it all helps.

As always debt is the issue when you opt out. And I still contend one needs less than the financial guys say --as much as possible is great but you get my meaning.

[Crowbob]

The financial guys need to create demand for their services.

[KFC911]

Originally Posted by Crowbob

The financial guys need to create demand for their services.

No one cares more about your money than they do

[fintstone]

According to SS, you get 8% more for each year you wait after full retirement age. If your full retirement age is 66, at 67 you'll get 108 percent of the monthly benefit because you delayed 12 months. If you wait for 70, you'll get 132 percent.

Since we really don't need the money (I see no reason to change my/our lifestyle at this point), I figure that my wife and I might as well wait until 70. We might need it then...and 32% more is pretty significant. I am not sure how I would invest the money at this time if did take it (probably TBills at @5%). Might as well wait.

[Crowbob]

Well, fint.

If you happen go to the mountain and the magic works before you take any w/drawals…poof, gone.

But if you take some and even just stash it before you go to the mountain your kids or girlfriend or even snake woman gets what you’ve stashed over the years.

[stevej37]

I signed up for mine at age 65. I wanted it when I could use it for fun, instead of more for a new and better wheelchair.

[fintstone]

Originally Posted by Crowbob

Well, fint.

If you happen go to the mountain and the magic works before you take any w/drawals…poof, gone.

But if you take some and even just stash it before you go to the mountain your kids or girlfriend or even snake woman gets what you’ve stashed over the years.

If I am dead, I will not need it. My wife is well provided for, and my kids need to make their own money/future.

Of course, there is always the chance that they might means test it in the future (If you have accumulated a small amount of wealth). That would be problematic as if my wife is gone, I will need the extra at 70 to attract a couple of recently graduated college cheerleaders to keep me company in my old age.

If I were having any more fun now, it would probably kill me.