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How We View Social Security:

Most people understand the basics of social security and why/how it is used, and we also understand that it has been a critical systematic financial instrument for millions of Americans for decades. The positive side of social security is that, if it was completely wiped out today, millions of Americans would have no where to go for income in retirement. It has also been a long-term way to almost “force” people to save for retirement, which should be thought of beneficially in the sense that many receiving SS today would not have planned accordingly themselves. The more negative side is that the average modern-day American should not be hoping or forecasting to eclipse his/her lifetime of contributions with the benefits that will be received, and that social security can generally and simply be thought of as a “bad deal.” Also, especially with younger adults, no aspect of social security today should be thought of as “guaranteed” for the future, especially with a recent history of pushing back what is thought of as retirement age, the impact of baby boomers, and continually increasing life expectancies. The objective here is not to host a roast towards social security or to argue whether it should exist or be treated the same in the future, but rather be dually educational and hopefully persuasive. While most understand the basics of SS, we believe that most do not have the right attitude towards it or even relationship with it, and growing in this area will be critical when thinking about social security’s tax implications.

Social Security can be Taxable: What Does this Mean for You?

Whether you as the reader are an existing client, a potential client, or just someone who has any sort of retirement goal/plan, we are stressing that a healthy attitude towards social security is an attitude of non-dependence that coincides with proper retirement planning. The average monthly SS benefit in 2020 is just above $1,500 a month, which equates to $18,000 in annual income. With relying on SS alone, it is very possible to put in 40 years of hard work and make an honest living, just to live paycheck to paycheck and lack financial freedom in retirement. The great thing about us and other fiduciary-based investment advisors is that we are in the business of helping YOU create and control your income and assets in retirement with your best interest always coming first. So many aspects of the investment world and finance industry are situational, and that is especially true when thinking about clients in general. It should go without saying that no two clients are exactly alike, and that all situations, goals, constraints, etc. are never going to be the same across the board. However, the nature and execution of our business is directed at producing a result opposite to relying on social security in retirement. For all of our clients, we want SS to be nothing more than a small “cherry on top” when comparing to other income-producing instruments and retirement assets. When considering this, and the fact that social security CAN be taxable on the federal level, it’s easier to understand why we actually hope and believe that all of our clients will have to pay federal taxes on social security. Next, you will see the guidelines/income brackets for the federal taxation of SS and why ‘tax’ can be thought of as an unusual positive in this sense.

Tax and Income Guidelines:

A portion of social security benefits may be taxable, and here are the current guidelines to follow:

*For all of these situations, consider one half or 50% of annual social security for each individual and add it to other income which can include wages, pension, interest, dividends, and capital gains.

Up to 50% of SS benefits may be taxable if:

  • Annual income is $25,000-$34,000 for filing as single, head of household, or qualifying widow/widower

  • Annual income is $25,000-$34,000 for married filing separately (have to live separately for entire preceding year)

  • Annual income is $32,000-$44,000 for married filing jointly (consider one half of annual social security income from each spouse)

Up to 85% of SS benefits may be taxable if:

  • Annual income is more than $34,000 for filing as single, head of household, or qualifying widow/widower

  • Annual income is more than $34,000 for married filing separately (have to live separately)

  • Anyone for married filing separately that lived with their spouse for any amount of time in the preceding year

  • Annual income is more than $44,000 for married filing jointly

Key Points:

  • With proper retirement planning, you can expect to pay some portion of tax on social security benefits when considering the combined income of SS and portfolio distributions (interest, capital gains, dividends) and/or pension income

  • Again, this is a rare case when you actually want to pay taxes, because if you weren’t, it would obviously be due to your retirement income being lower than the limits

  • A typical client is forecasted to live on a comfortable and satisfying retirement income that considers the client’s desires and wishes and the reasonability, suitability, and tradeoffs behind them that will easily surpass these limits while still allowing average portfolio growth to exceed distributions


September 18, 2020

Griffin Lusk

Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm.  The information presented is for educational purposes only and intended for a broad audience.  The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed.  Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner. 

Whitaker-Myers Wealth Managers is not giving tax, legal or accounting advice, consult a professional tax or legal representative if needed. 

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