Social Security Q&A: Will My Benefits Be Taxed?

Photo by pathdoc / Shutterstock.com

Welcome to “Social Security Q&A.” You ask a Social Security question, and our guest expert provides the answer.

You can learn how to ask a question of your own below. And if you would like a personalized report detailing your optimal Social Security claiming strategy, click here. Check it out: It could result in you receiving thousands of dollars more in benefits over your lifetime!

This week’s question is from Jackie:

I am thinking about starting to collect Social Security in a one year and four months, when I turn 66. I am still working and have no retirement to speak of. Would it be wise to take Social Security while I am still working and invest it, or would the tax consequences be too high? My salary will be about $32,000 a year. I am also a widow and my husband did not qualify for Social Security.

3 things to consider before taking Social Security

Jackie, there are many aspects to your question, which is why it is often difficult to decide when to start taking Social Security benefits. Here are some things to consider.

First, if you begin taking Social Security before your full retirement age, 66, Social Security will reduce your benefit if you earn more than $17,040 this year. If you wait until the calendar year in which you reach your full retirement age, then you can earn $45,360 before your benefits will be reduced.

After reaching full retirement age, you can earn as much as you want without any reduction. So, given your present salary, if you wait until that age before taking benefits, your benefits will not be reduced even if you continue working.

Second, your Social Security benefits increase each month that you delay taking them. For single people, full retirement age is not a magic number. Each year you delay them after full retirement age, benefits increase by 8 percent a year until you reach 70. If you have limited savings and you do not need your benefits immediately, this may be your last opportunity to really increase your income in retirement.

Third, you asked a question about taxes. The table below shows how much of your Social Security benefits are taxable for different levels of combined income where combined income is defined to be:

Single Married filing jointly
Benefits not taxed: < $25,000 < $32,000
50% of benefits taxed: $25,000 – $34,000 $32,000 – $44,000
85% of benefits taxed: > $34,000 > $44,000

You said your earnings are about $32,000 and you have little in savings. Let’s suppose that your interest income is $400 a year. Then, your adjusted gross income would be $32,400.

If your Social Security benefits are $700 per month, then your annual benefit would be $8,400. Your combined income would then be $32,400 + ½ ($8,400) = $36,600. This is greater than $34,000, so 85 percent ($7,140) of your Social Security benefits would be taxed.

Note: A married couple with this combined income of $36,600 would pay taxes on only 50 percent ($4,200) of their benefits, since this is less than $44,000

If you stopped working — or work only part-time so that your salary drops below $20,000 — none of your Social Security benefits would be taxed because your combined income would drop below $25,000.

As you can see, there are many factors that can influence your retirement income. But perhaps the most important thing is to recognize that delayed claiming can increase your future benefits.

Got a question you’d like answered?

You can ask a question simply by hitting “reply” to our email newsletter, just as you would with any email in your inbox. If you’re not subscribed, fix that right now by clicking here. It’s free, only takes a few seconds and will get you valuable information every day!

The questions I’m likeliest to answer are those that will interest other readers. So, it’s better not to ask for super-specific advice that applies only to you.

About me

I hold a doctorate in economics from the University of Pennsylvania and taught economics at the University of Delaware for many years. I now do the same at Gallaudet University.

In 2009, I co-founded SocialSecurityChoices.com, an internet company that provides advice on Social Security claiming decisions. You can learn more about that by clicking here.

Got any words of wisdom you can offer on today’s question? Share your knowledge and experiences on our Facebook page. And if you find this information useful, please share it!

Disclaimer: We strive to provide accurate information with regard to the subject matter covered. It is offered with the understanding that we are not offering legal, accounting, investment or other professional advice or services, and that the Social Security Administration alone makes all final determinations on your eligibility for benefits and the benefit amounts. Our advice on claiming strategies does not comprise a comprehensive financial plan. You should consult with your financial adviser regarding your individual situation.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
Beware These 3 Tax Penalties on Retirement Accounts

Protecting a nest egg is tough — but you can make the situation far worse with some boneheaded mistakes.

5 Simple Steps to an Awesome Retirement

The path to your dream retirement begins with these five steps. How many have you already taken?

8 Key Steps to Planning for Retirement as a Couple

Ready for retirement? Not so fast. You might be surprised at some of the issues that come up for couples when they plan.

15 Free Streaming Services to Watch While Stuck at Home

These free streaming video services offer thousands of movies and TV shows, including recent releases and beloved classics.

5 Home Improvements That Help You ‘Age in Place’

These safety-conscious home upgrades can help retirees stay in their home.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
11 Things Retirees Should Always Buy at Costco

This leader in bulk shopping is a great place to find discounts in the fixed-income years.

Over 50? The CDC Says You Need These 4 Vaccines

Fall is the time to schedule vaccines that can keep you healthy — and even save your life.

9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

11 Senior Discounts for Anyone Age 55 or Older

There is no need to wait until you’re 65 to take advantage of so-called “senior” discounts.

8 Things You Can Get for Free at Pharmacies

In this age of higher-priced drugs and complex health care systems, a trip to the pharmacy can spark worry. Freebies sure do help.

These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

The 10 Most Commonly Stolen Vehicles in America

A new model parks atop the list of vehicles that thieves love to pilfer.

7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

9 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

10 Reasons Why You Should Actually Retire at 62

If you can, here are several good reasons to retire earlier than we’re told to.

5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

14 Things That Are ‘Free’ With Medicare

These services could save you money and help prevent costly health problems.

15 Products You Need — Even If You Didn’t Know It

Discover some must-have products on Amazon that you didn’t even know you were missing.

Do This in the Car If You Want to Avoid COVID-19

It takes just seconds to take this simple preventive measure.

26 States That Do Not Tax Social Security Income

These states won’t tax any of your Social Security income — and in some cases, other types of retirement income.

5 Keys to Making Your Car Last for 200,000 Miles

Pushing your car to 200,000 miles — and beyond — can save you piles of cash. Here’s how to get there.

5 Things That Make Life More Meaningful for Retirees

Retirees agree: These are the things that give them purpose and fulfillment in their golden years.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.