Social Security
Another big decision is planning when to start taking your Social Security benefits. Generally, you can start as early as 62, but your retirement benefits will be reduced by 25 percent or more for the rest of your life. Or you can wait to collect your full benefits when you reach the full retirement age, which is 66 for those born between 1943 and 1954. Full retirement age increases for those born in 1955 and beyond. The age is 67 for those born in 1960 and beyond.
For each year you delay collecting benefits after the full retirement date up until age 70, you qualify for an even bigger retirement benefit.
Also, consider whether you plan to continue working once you start collecting Social Security benefits. If you are younger than the standard retirement age, you will lose $1 in retirement benefits for every $2 you earn over the earnings cap, which is $18,240 in 2020.
Tax on Social Security
Whether or not any of your benefits will be taxed depends on your income, which in this case is defined as your Adjusted Gross Income, plus tax-free interest, plus half of your Social Security benefits. If your income is less than $25,000 on a single return or $32,000 on a joint return, your Social Security benefits are tax-free. Individuals with incomes between $25,000 and $34,000 pay tax on up to 50 percent of their benefits. Individuals with incomes over $34,000 pay income tax on up to 85 percent of their benefits.
Married couples filing a joint return with incomes between $32,000 and $44,000 pay tax on up to 50 percent of their Social Security retirement benefits. Married couples with incomes over $44,000 pay taxes on up to 85 percent of their benefits.
Whether or not taxes are withheld from your benefits each month is up to you. You may want to ask the Social Security Administration to withhold federal income taxes from your retirement benefits if doing so lets you avoid making quarterly estimated tax payments. To start, stop or change withholding, file a Form W-4V with the IRS. State tax laws vary. Some states exempt some or all of your Social Security benefits from income taxes.
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