The cost of labor and how to maximize your Social Security

Many people are surprised to learn that Social Security payments can be taxable. In fact, depending on your Modified Adjusted Gross Income (MAGI), you may be taxed on up to 85% of your benefits. Once you reach retirement age, your Social Security benefits are taxed based on your filing status and how much other income you receive. If you file singly and your provisional income is below $25,000 annually, you will not pay taxes on your Social Security benefits.  (Provisional income includes gross income, tax-free interest, and 50% of Social Security benefits.) A single filer whose provisional income is between $25,000 and $34,000 will be taxed on up to 50%. Single filers whose provisional income is more than $34,000 are taxed on up to 85% of their benefits. The numbers increase for people who file jointly, with those whose provisional income remains under $32,000 avoiding taxes on Social Security, couples earning a provisional income of between $32,000 and $44,000 taxed on up to 50% and those earning over $44,000 in provisional income taxed on up to 85%. Some states also tax Social Security benefits, although they are exempt from state taxes in Wisconsin and 36 other states. Knowing the difference between qualified and non-qualified money is the key to making the most out of the money you’re earned. Qualified money includes assets you have accumulated but not paid income taxes on yet, for instance, IRA and 401(k) money.  Because you won’t have to pay taxes on these assets until you withdraw them, the government requires you to begin doing so when you reach 70 ½. These are called required minimum distributions and you must take them every year or you will be penalized. Additionally, these distributions adjust your provisional income higher, which makes more of your Social Security taxable. That’s one reason to increase the amount of non-qualified assets you have in your portfolio as you get closer to retirement…. | Read More »

We want YOU to understand when to take Social Security

He’s always been a strange uncle and now he’s saying he wants YOU to help with a few chores around the house. But nothing is ever easy with this guy.  He offers to pay you twenty dollars in two years or thirty dollars in five years. Pulling out five different charts, he says his payment plan is all very simple, and points to numbers like a mad scientist.    Words like “indexing”, “inflation”, and “credits” fly like spittle from his mouth. Cautiously you back away, hoping against hope that he will put himself to sleep with his ranting.  You mumble that you hear someone calling, and turn: tumbling, fleeing, running, sprinting.  You’re safe.  For now. Sadly, most Americans approaching retirement don’t have this option.  They must confront the intricacies of Uncle Sam’s Social Security head on.  And while it would take a novel to fully explore the pros and cons of different filing strategies, I hope to analyze one of the more common ones: out-investing Social Security. The strategy goes like this: take Social Security at the earliest possible age (62) and reinvest the benefits, with the intent of using market returns to exceed the penalty for starting benefits early.  There are some advantages to this tactic.  It creates an asset reserve that can be used for expenses or gifting during the retiree’s lifetime.  If the retiree dies young, he or she will have the benefit of having received more Social Security Security and more investment returns.  And even if they live a long life, excellent returns on their investments may overshadow the loss to Social Security benefits. However, there are several counterarguments. The first is that Social Security itself offers very competitive returns.  Each year benefits are delayed after 62, they will increase anywhere from five to eight percent.  This is simple interest rather than compound, but over an eight year period the difference isn’t severe.  To get similar average… | Read More »