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Can I still maximize my retirement income without triggering tax on my Social Security?

by Susan Wright | Contributor
April 3, 2020


Many people look forward to receiving passive retirement income like Social Security. So, if you and/or your spouse have paid into the Social Security program for all of your working life, it’s only right that you reap the rewards – along with income from other sources.

But, did you know that you could be taxed on half – or more (up to 85%) – of the income you bring in from Social Security?

Depending on when you opt to begin your benefits, you may have to pay income tax on up to 85% of what you receive from Social Security. But there are ways that you can still maximize incoming cash flow in retirement without having to hand over a large chunk of your income to Uncle Sam.

Could you be sabotaging your Social Security retirement benefits?

If you qualify for Social Security retirement income, your benefits may be started as early as age 62 – and, while the dollar amount is will be permanently reduced if you begin Social Security before your full retirement age (FRA), in some cases doing so can make sense.

But it could also result in you having to pay taxes on these benefits. And if this is the case, you could have far less in net retirement income to spend on the items and services you need and want.

Your full retirement age, along with your annual income amount, and the way you file your taxes will provide you with the answer. In 2020, if you are under your Social Security FRA and you:

  • File your tax return as a single individual, and your combined, or provisional, income is between $25,000 and $34,000, you may have to pay tax on up to 50% of your benefits. If you bring in more than $34,000, then up to 85% of your Social Security benefits could be subject to tax.
  • File a joint tax return with your spouse, and you both have combined income that is between $32,000 and $44,000, you could find yourself paying tax on up to 50% of your Social Security benefits, and up to 85% could be taxed if you earn more than $44,000.
Social Security Full Retirement Age

Tax Filing Status

Provisional Income Amount

Percent of Social Security Benefits that are Taxable


Up to $25,000


$25,001 - $34,000



Over $34,000


Married Filing Jointly

Up to $32,000


What counts as provisional income?

It is important to note that your entire Social Security benefit won’t be taxed, but only the amount that falls over the provisional income threshold. So, one of the best ways to avoid paying tax on your Social Security benefits is to reduce the amount of provisional income you generate.

What exactly counts as provisional income? According to the IRS, provisional income is defined as “the sum of wages, taxable and non-taxable interest, dividends, self-employment, and other taxable income, plus 50% of your annual Social Security benefits.”

In order to determine the amount of provisional income you have, you can run a simple calculation:

Your Adjusted Gross Income + Non-taxable Interest + Half of your Social Security Benefits = Your Provisional Income

Every year in January, you will receive a Social Security Benefit Statement that shows you the amount of benefits you received in the prior year. This statement can be used when you fill out your Federal income tax return in order to determine how much – if any – of your Social Security benefits are taxable.

Can you reposition assets to reduce or eliminate tax on Social Security?

The good news is that there are ways that you could reposition assets in order to reduce – or even eliminate – taxes on your Social Security retirement income. One way to do so is to purchase an annuity.

Income from annuities is not considered earnings for Social Security purposes. So, if you use this financial vehicle for generating a portion of income in retirement, it won’t count against the provisional income dollar figure for calculating tax on your Social Security retirement benefits.

Can you reposition assets to reduce or eliminate tax on Social Security?

The good news is that there are ways that you could reposition assets in order to reduce – or even eliminate – taxes on your Social Security retirement income. One way to do so is to purchase an annuity.

Married seniors planning their retirement finances

If you choose to purchase a fixed indexed annuity, or FIA, the funds that are in the account have the opportunity to generate a higher return than that of a regular fixed annuity (as well as other “safe” investments like CDs and bonds). This is because the returns on an FIA are based on the performance of an underlying market index, such as the S&P 500.

If the index performs well during a given time period, the annuity will be credited with a positive return (oftentimes up to a certain cap, or maximum). However, if the underlying index performs poorly during a given time frame, the annuity will not lose value. Rather, it is simply credited with a 0% rate for that period.

So, in addition to the possibility for a nice gain, fixed indexed annuities can also protect your principal – in any type of market. This is considered by many to be a “best of both worlds” scenario.

There are a number of other benefits that you could receive through a fixed indexed annuity, too, such as:

  • A reliable, ongoing income stream for life – regardless of how long that may be
  • Lifetime income for your spouse or partner (using the joint life income option)
  • Tax-deferred growth on funds in the account
  • Protection from bankruptcy and creditors (in some states)

While fixed indexed annuities can provide you with some enticing benefits, though, not all of these annuities are exactly the same. So, before you make a long-term commitment on an FIA, it is best to first discuss your options with an annuity specialist.

Are you ready to learn more about maximizing your net retirement income?

While most retirees want to bring in as much income as possible during retirement, doing so could end up resulting in taxation. So, it is important to make sure that all of your income sources are well coordinated with one another.

Alliance America can help

Alliance America is an insurance and financial services company. Our financial planners and retirement income certified professionals can assist you in maximizing your retirement resources and help you to achieve your future goals. We have access to an array of products and services, all focused on helping you enjoy the retirement lifestyle you want and deserve. You can request a no-cost, no-obligation consultation by calling (833) 219-6884 today.


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