With Social Security and Taxes, Make Sure You’re Getting the Right Advice
When you should start taking your benefits and how your provisional income affects your taxes are two critical pieces of the retirement puzzle. To make the right moves, you need to look at the big picture.
Plenty of experts on Social Security can provide information ranging from reports to analysis pieces about determining the best time to opt into the program to maximize your benefits. However, some of these experts may not give you the whole picture: They may not take taxes into consideration, and that could hurt your retirement plans.
Never underestimate how much of an impact Social Security taxes can have on your retirement. An important, but often misunderstood, factor is your provisional income. Your provisional income determines whether you will be taxed on your Social Security benefits, as well as how much you owe.
The Internal Revenue Service defines provisional income as the sum of your adjusted gross income, non-taxable interest and 50% of your Social Security benefits. If your provisional income is more than $34,000 (for an individual) or $44,000 (for a married couple filing jointly), you can be taxed on up to 85% of your Social Security benefits. As you can see, your adviser might steer you the wrong way if he doesn’t consider how Social Security can impact your taxes as part of your retirement calculations.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Choose your help carefully
It’s also important to gather the correct information on when you should retire and when you should start taking Social Security. Let’s say you retire at 60 and, after talking to an adviser, you decide to start taking Social Security when you’re 66 – which you believe is the optimal time. You will have to live on your assets for the next six years, instead of taking Social Security at 62 and allowing your assets to continue to grow. And, of course, whatever you decide, you need to factor in how it can impact your taxes.
There are some steps you can take to make sure you do not get hit hard by taxes when you retire, but the most important one is making sure your adviser has the experience and knowledge to guide you through retirement. Sure, there are plenty of financial professionals who profess to be experts on Social Security, but they might not be as knowledgeable about how taxes and your investments might impact your benefits. If that’s the case, they potentially can draw up the wrong game plan for your retirement.
What do you look for in a fiduciary adviser? One good benchmark is someone who performs a comprehensive review of your overall financial plan. You want a planner who considers all of your investments and who has the ability to give you guidance on your overall income picture and the impact it can have on your taxes and future income.
Don’t rely on the SSA for guidance
You might be tempted to turn to the Social Security Administration for help, but you might not find the advice you need. Recently, I spoke with a longtime Social Security administrator who offered me some advice on the people he worked with on a daily basis. “The people who work at Social Security are just order takers,” he told me. “They are not there to educate you on how it works. They are basically there to ask what you want to do.” It was an interesting perception from someone who worked at Social Security for more than three decades and a reminder of how important it is to find the right adviser who can help ensure your retirement is set up correctly.
This being the case, you need to work with a retirement planner who knows how provisional income works and how it can affect your taxes. Remember, at the end of the day, some advisers will not tell you where to take income from. You might tell them you need to take income, and they might send it to you with no thought on how it will impact your provisional income and the taxes you will pay on Social Security. You need to work with someone who can tell you what sources to use when you start taking income in your retirement. The majority of financial advisers simply don’t do that. The same holds true for many CPAs. They’re simply not paid to be specialists in Social Security.
Too many of us go into retirement flying blind. After working hard throughout our lives, we assume tax headaches go away when we start taking Social Security. In fact, Social Security can cause tax headaches of its own, unless you work with a financial adviser who helps you find the right strategy to avoid handing more money over to Uncle Sam in your retirement.
Kevin Derby contributed to this article.
SEE ALSO:
Social Security: Delay or Hit Go?
p>
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
-
Americans, Even With Higher Incomes, Are Feeling the SqueezeA 50-year mortgage probably isn’t the answer, but there are other ways to alleviate the continuing sting of high prices
-
Hiding the Truth From Your Financial Adviser Can Cost YouHiding assets or debt from a financial adviser damages the relationship as well as your finances. If you're not being fully transparent, it's time to ask why.
-
How to Manage a Disagreement With Your Financial AdviserKnowing how to deal with a disagreement can improve both your finances and your relationship with your planner.
-
Are You Honest With Your Financial Adviser? Why Hiding the Truth Can Cost You
Hiding assets or debt from a financial adviser damages the relationship as well as your finances. If you're not being fully transparent, it's time to ask why.
-
5 Actions to Set Up Your Business With Your Exit in Mind, From a Wealth AdviserWhen you're starting a business, it may seem counterintuitive to begin with exit planning. But preparing will put you on a more secure footing in the long run.
-
Missed Your RMD? 4 Ways to Avoid Doing That Again (and Skip the IRS Penalties), From a Financial PlannerIf you miss your RMDs, you could face a hefty fine. Here are four ways to stay on top of your payments — and on the right side of the IRS.
-
What Really Happens in the First 30 Days After Someone Dies (and Where Families Get Stuck)The administrative requirements following a death move quickly. This is how to ensure your loved ones won't be plunged into chaos during a time of distress.
-
AI-Powered Investing in 2026: How Algorithms Will Shape Your PortfolioAI is becoming a standard investing tool, as it helps cut through the noise, personalize portfolios and manage risk. That said, human oversight remains essential. Here's how it all works.
-
A Newly Retired Couple With a Portfolio Full of Winners Faced a $50,000 Tax Bill: This Is the Strategy That Helped Save ThemLarge unrealized capital gains can create a serious tax headache for retirees with a successful portfolio. A tax-aware long-short strategy can help.
-
5 Retirement Myths to Leave Behind (and How to Start Planning for the Reality)Separating facts from fiction is an important first step toward building a retirement plan that's grounded in reality and not based on incorrect assumptions.
-
I'm a Financial Adviser: Silence Is Golden, But It Hurts Your Heirs More Than You ThinkTalking to heirs about transferring wealth can be overwhelming, but avoiding it now can lead to conflict later. Here's how to start sharing your plans.
