
Social Security
Taxing Social Security Benefits
Your combined income affects how much your Social Security benefits are taxed. Learn what tax bracket you fall into.
As part of the Bipartisan Budget Act of 2015, Congress rewrote select rules of the Social Security Act as a way to save money and improve the financial status of Social Security without affecting the benefits of retirees who need them most. While the rules prior to the revisions were thought of as loophole strategies to maximize spousal benefits, it’s important to take note of the changes made.
The first change has to do with a claiming strategy for married couples called “file and suspend.” The second change is with regard to a strategy called “restricted application.” We’ve outlined the details of these two changes here:
Prior to Revision | Post 2015 Revisions | |
File and Suspend | At Full Retirement Age (age 66) your spouse can file for benefits and suspend receipt of that income. Meanwhile, you can file for and receive spousal benefits while your spouse holds off on receiving their own Social Security benefits. Because your spouse has held off on receiving their own Social Security Benefits, he/she will receive Delayed Retirement Credits that will increase his/her income stream by 8% for each year he/she continues to delay receipt of benefits up until age 70. | If your spouse turned 66 by April 29, 2016 – the date when the new rule went into effect- you can still file and suspend under the old rule.
If your spouse turned 66 after this date, you can still file and suspend your own benefits and earn Delayed Retirement Credits until age 70. But, your spouse cannot collect on your work record while your own benefits are delayed. That is, your spouse can only collect spousal benefits while you’re currently receiving your own benefits. |
Restricted Application | At Full Retirement Age (age 66) you can file a restricted application so that you only receive a spousal benefit. This way, you receive the spousal benefit while allowing your own Social Security benefit to accumulate Delayed Retirement Credits up until age 70. | If you are eligible for a spousal benefit and a benefit under your own work record, you will have to file for both at the same time. Social Security will give you the greater of these two. |
The old retirement adage says that we should use the three-legged stool approach to prepare for retirement:
According to the Social Security Administration, individuals aged 65 and over in the top quartile for income (an average of $78,180) received only 18% of their income from Social Security. So where does the remaining 82% come from?
Income annuities provide a guaranteed lifetime stream of income during your retirement. You pay a lump sum upfront to purchase your annuity from an insurance company. Then, the insurance company sends you a series of payments for the rest of your life.
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Your combined income affects how much your Social Security benefits are taxed. Learn what tax bracket you fall into.
You know that Social Security plays a significant role in retirement, but what are the overlooked pros and cons of it? We’ve laid them out here.
Social Security is impacted by the Cost of Living Adjustment (COLA) which accounts for inflation changes. Because of concern of how adequate this adjustment is, there are possible alternatives for Social Security reflecting inflation increases.