By Ben Young

Astute Wealth Management

 

Real estate investors find quality and comfort abiding to the adage of location, location, location. Social security recipients, or those planning for life at 62 and beyond, are best served adhering to delay, delay, delay to maximize the return from their years of toil.

 

The decisions underlying either a real estate purchase or determining when best to begin taking the Social Security payments due you each require significant thought and calculation. Both situations involve many components, some easily visible and others not so apparent.

 

Federal and other rules and regulations involving real estate transactions as well as Social Security usually come with significant supporting communications. Sometimes, changes are less ceremoniously enacted or left to end, often without any fanfare whatsoever.

 

2015 Bipartisan Budget Act

The 2023 sunsetting of several components within the Bipartisan Budget Act of 2015 which impacted many Social Security recipients is an example of a regulation which ended without much accompanying noise. The act closed some previously beneficial loopholes for people born between 1943 and 1954 while altering qualifying provisions for those born in 1955. However, both instances covered in the 2015 act which went into effect in January 2016 created additional incentives for delaying accepting Social Security as long as possible. Moves made to delay Social Security along with effective tax planning can result in additional earnings and savings increases anywhere from one hundred thousand dollars to several millions over a lifetime.

 

Now with an even playing field is the time to review your Social Security and post age 62 financial life. While one would think planning would be simpler as was a partial intent of the Bipartisan Act, planning is indeed quite complicated. Among the many considerations are when to start taking Social Security given you can begin taking at age 62 at a 25% reduction from your full retirement age (see charts 1, 2) or wait as long as age 70 when your payment ceiling will max out, subject of course to annual cost-of-living increases when and if added.

 

Waiting until age 70 may result in up to a 32% or more premium from what you would have received at full retirement age (see charts 3, 4).

Consideration also must be given to the role of having additional income while receiving Social Security may have on your finances. Half or more of your Social Security may become subject to Federal and possibly even state taxes if your added income surpasses specific levels.

 

Social Security recipients aged 62 until reaching full retirement age potentially can have their payments reduced. The penalty for age 62 until the year before reaching full retirement age is $1 or 50% for each $2 earned above a $22,320 limit. The penalty is $1 or 33.33% for each dollar earned above $59,000 in the year in which full retirement is reached.

 

Social Security Tax Possibilities

But wait, there is more.

 

Significant complications often arise when Social Security benefits, which are generally not Federally taxed (nor are they in most states), will become part of the equation to determine overall tax liabilities when other applicable income pushes your adjusted gross beyond threshold limitations.

 

Single or head of household filers will find their Social Security benefits taxed up to 50% when other income is in the $25,000 to $34,000 range. Social security benefits are subject to tax at 85% when the other income exceeds $34,000.

 

Married filing jointly taxpayers will have Social Security payments subject to 50% taxation when other income is in the range from $32,000 to $44,000. Social Security is subject to 85% taxation when earning more than $44,000.

The following list is a roster classified as provisional income to be included in determining taxation of Social Security benefits:

  • One-half of Social Security benefits
  • Wages
  • Business income
  • Interest
  • Income from municipal bonds
  • Capital gains
  • Dividends
  • Traditional IRA distributions
  • Rental income
  • Pensions
  • Inheritance, possibly
  • Other . . .

Provisional income excludes:

  • Income from Roth IRAs
  • Tax-deferred build-up inside IRAs, 401(k)s and annuities
  • Non-taxable income from life insurance

 

Social Security has been an important constant of aging American’s financial wellbeing since the

first payments made to recipients in January 1937 but the promises it provides do not come

without challenges. The current Social Security climate is clear evidence of many elements

which must be critically considered and analyzed. The concerns of pre-2015, the introduction of

the Bipartisan Act and the ending of several of its central ingredients really have little bearing

on what comes now. The new emphasis is on making intelligent decisions that weigh each of

the numerous factors.

 

Astute Wealth Management has created several calculators and planning tools to aid in the

process of maximizing earnings and minimizing taxes to the extent allowed by law. Please

contact Ben Young (insert contact info) to arrange for an appointment to update your plan

already in place or to create a new one for you or other members of your family. Please check

back as well for additional articles on the topic of Social Security.

 

Securities and advisory services offered through LPL Financial, a registered investment advisor, member FINRA/SIPC.

The LPL Financial registered representative(s) associated with this may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state