The 3 questions you need to answer BEFORE you hang up your work boots:
1. How much income will you need in retirement? 2. How much is your Primary Insurance Amount? 3. Subtract 2 from 1 and divide by .04. Is your liquid net worth larger than that number?
If so, you’re probably going to be in good shape.
If not, you have some work to do. But no worries, you’ve taken a HUGE step towards preparing for a successful retirement.
Maybe there is some fat you can cut from your income needs. Maybe you can increase your Social Security benefit. Maybe you can work an extra year or two to get your liquid net worth up to where you need it to be.
Lots of things you can do to prepare.
Remember, this is just a STARTING POINT. Nothing is chiseled in stone. But the journey of a million miles starts with the first step. So, use this quiz to begin your journey.
And share it with others!
Social Security taxation is one of my all-time pet peeves. Primarily this annoys me because by the time the taxes are felt, it’s too late for the taxpayer to do anything about it.
At that point, it’s just a matter of hoping they have enough resources to pay the tax-man and live comfortably.
Tax-Exempt Interest Affects Social Security Taxation
In the video below, I show you an article from Money magazine where in passing a tax pro mentioned how tax-exempt benefits are taxed when it comes to your Social Security.
Unfortunately, this mention was made in passing and I imagine most people would overlook it.
He said that tax-exempt interest is counted in your combined income to determine the amount of taxes you pay on Social Security.
Don’t Overlook This!
But the writer of the article completely failed to discuss in any further detail, as is typical with business writers. They seem to over-look what should be obvious and thus fail to ask the fundamental question “You mean to tell me my tax-exempt interest can make my Social Security subject to taxation?”
Doesn’t that seem odd? That tax-exempt interest is part of the calculation for determining taxes on Social Security?
When Tax-Exempt Is NOT Tax-Exempt
Of course it does! Tax-exempt is “Tax Exempt”, after all. But it’s not!
Why the financial media and other financial professionals don’t understand this boggles my mind.
But it gets worse!
Married or Single Is a BIG DEAL
How Social Security is taxed is also contingent on if you’re married or single.
A single person with $34k of Social Security benefits and $20k of other income, pays $1616 in Federal Income tax.
A married couple with $40k of Social Security and $20k of other income pays NOTHING in Federal Income tax. Yes, you heard that correct – NOTHING!
How Single Taxpayer Pays More in Tax on LESS Income
The single person had gross income of $54k and paid nearly $2k in taxes.
The married couple had gross income of $60 and paid nothing.
In fact for the married couple to pay the same amount of tax as that single person they’d need a whole lot more gross income.