I’m going to end up paying taxes on 85% of my Social Security benefits in retirement. What will my final check look like?

“These calculations are based on my current situation, not factoring the deficit anticipated after 2034 when Social Security runs out of excess funds and can only pay about 80%.” – MarketWatch photo illustration/iStockphoto

Dear MarketWatch, 

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I have been taking a look at my Social Security statements. If I wait to collect until age 67 (I’m currently 52), in theory I would be eligible to receive $3,000 per month. These calculations are based on my current situation, not factoring the deficit anticipated after 2034 when Social Security runs out of excess funds and can only pay about 80%.  

I hope to be able to collect an annual income of around $75,000 per year from my 401(k), plus the $36,000 per year in Social Security. That puts me well above the tax-free zone and I expect to get to pay federal taxes on 85% of my Social Security. As a single-filer in Virginia, what can I expect my $3,000 per month Social Security income to look like ?

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Dear Reader,

To answer your question involves a lot of variables, many of which are not yet known. You’re right that the $3,000 is based on your current situation, but that also means it’s dependent on nothing in your life changing, including your job or your income.

For those unaware, Social Security income can be taxed. If you’re filing as an individual, and your “combined income” (that’s your adjusted gross income, plus nontaxable interest and one-half of your Social Security benefits) is between $25,000 and $34,000, 50% of your benefit may be taxed. Anything above $34,000, and the taxable portion rises to 85%. For people who file a joint return, the range for the combined income (including your spouse’s) is $32,000 to $44,000. Anything above that, and 85% of benefits could be taxed. About four in 10 people who receive Social Security benefits pay federal income taxes, the Social Security Administration said on its website .

You are allowed to have federal taxes withheld from your benefits if you want to see less of a tax liability come tax season. That would also affect what you see in your Social Security check every month.

And keep in mind, this is separate from state taxes. Many states do not tax Social Security, but a handful do. In 2024, that list includes Colorado, Connecticut, Kansas, Minnesota, Montana, New Mexico, Rhode Island, Utah and Vermont, according to Nerdwallet .

Back to your question. It is very hard to know for sure what your Social Security benefit will look like, since you are 15 years out from when you plan to claim benefits. So much can change in that time, including tax brackets and the ranges for Social Security taxation, policy for the program and your own personal circumstances. Also, while the program is currently on track to run into financial issues by 2034, Congress has never let Social Security falter before, and there’s still time for it to be fixed.

Focus on your current saving s plan

While you’re waiting for more clarity regarding your Social Security income, you can focus on what you are already saving for the future, and how to be as tax-efficient as possible when you get to retirement. If you have most of your money in pre-tax accounts, like a traditional 401(k) plan or an IRA, you might want to take advantage of Roth accounts, said Marguerita Cheng, a certified financial planner and chief executive officer of Blue Ocean Global Wealth. This could be in the form of a Roth 401(k), if your company allows it (or a split between a traditional and Roth 401(k), if that’s an option). It could also be a Roth IRA. You can contribute directly to a Roth IRA, or convert some of your pre-existing funds into one.

You don’t have to jump on a Roth conversion now if you’re in a high tax bracket, or a tax bracket you expect is higher than it will be later on.

“This could be after retirement, but before beginning Social Security benefits,” said Seth Mullikin, a certified financial planner and founder of Lattice Financial. “It will also help reduce their RMDs as the Roth IRA is not subject to RMD rules.”

HSA accounts and delaying Social Security

Funding a Health Savings Account is another tax-advantageous strategy. “HSAs can reduce taxable income in retirement, which can affect Medicare premiums and the amount of Social Security benefits subject to federal income tax,” Cheng said. “In retirement, using the HSA (instead of your IRA) for medical is preferable because not only are HSAs funds not taxable, they don’t affect your provisional income. Provisional income is what determines how much of your Social Security is included in your taxable income.”

You may also decide you can delay your Social Security benefits until age 70, or closer to age 70 at least. The longer you delay your benefits up until that point, the more money you’d get in Social Security benefits. You’d also have less time potentially subject to taxation. Pushing back claiming could also reduce the amount of money subject to taxation, said Ashton Lawrence, a certified financial planner and director at Mariner Wealth Advisors. “By delaying benefits, pre-retirees can maximize their Social Security income while minimizing tax liabilities,” he said.

It’s great that you’re trying to be as specific as possible in your benefits, but know that you do have time — and that time can make all sorts of changes. Instead of trying to drill in on one specific number right now, keep an eye on how your personal circumstances (and the political ones around us) affect your Social Security, and prepare as best as you can for what you do have control over.

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