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Social Security: What You Need to Know, Part 2

Social Security: What You Need to Know, Part 2

March 08, 2021
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Social Security benefits represent on average a third of retirees’ income.1 Nearly 90% of Americans 65 and older receive some type of Social Security benefits. About half of married couples and 71% of unmarried people on Social Security rely on the benefits for at least 50% of their incomes. Nearly a quarter of married couples and about 43% of unmarried people rely on Social Security for at least 90% of their income.

There are important factors you NEED to know regarding Social Security and your retirement. Here are two more:

[AUDIO] Social Security: What You Need to Know, Part 2

Your Social Security benefits are subject to income taxes

You may still have to pay taxes on your Social Security benefits.2 However, no one pays taxes on more than 85% of their benefits.3

The SSA requires recipients to pay taxes if they file returns as individuals and their combined income is more than $25,000. Joint filers (who are married) are required to pay taxes if their combined income is more than $32,000. Married Social Security recipients who file separate returns may still have to pay taxes on their benefits.

If you file a return as an individual and your combined income is $25,000-$34,000, you may have to pay income tax on up to 50% of your Social Security benefits.4 You calculate your combined income by adding together your adjusted gross income, taxable interest income, and half of your Social Security benefits.

These income sources may not be subject to federal taxes:5

  • Employer-provided insurance
  • Life insurance payouts
  • Inheritances and gifts
  • Qualified Roth IRA distributions
  • Municipal bond interest
  • Sale of principle residence

Married couples get spousal and survival benefits

Social Security benefits for married couples work differently. Here are five important facts:6

  1. Your current marital status doesn’t affect your eligibility for Social Security benefits. If you’ve worked at least 10 years and earned at least 40 work credits, you can get benefits.
  2. The SSA doesn’t penalize married couples or restrict benefits. Spouses receive benefits based on their own work histories.
  3. If you’re eligible to receive one of two benefits, you receive the higher one. Lower-paid spouses are eligible for benefits either on their own work histories or the spousal benefit on their partner’s record. Lower-paid spouses are eligible to receive between a third to a half of the benefits of their partners.
  4. Divorced spouses who were married at least 10 years are eligible for higher benefits based on the records of their partners. Divorce decrees relinquishing rights to partners’ benefits are not binding.
  5. Widowed Social Security recipients are eligible for widow benefits. Widows may get 71% (at age 60) and 100% of their spouses’ when the widow reaches full retirement age.

If you need help planning for your Social Security benefits, call our office at 320.222.4236.

You can email me directly at tim@taatjesfinancial.com.

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Sources:

  1. https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf
  2. https://faq.ssa.gov/link/portal/34011/34019/article/3831/must-i-pay-taxes
    -on-social-security-benefits
  3. https://www.ssa.gov/planners/taxes.html
  4. https://www.lawyers.com/legal-info/social-security/
  5. https://www.investopedia.com/articles/tax/10/nontaxable-invome-sources.asp
  6. https://www.ssa.gov/sf/FactSheets/WomenandSSrev1.pdf