Tax Planning Made Easy

Timing your Social Security benefits

The decision to when to start taking Social Security benefits depends on your personal and family circumstances. You can start drawing your retirement benefit at age 62 and get about 70% of your full benefit. You can wait until full retirement age* to receive 100% of your benefit. Or you can choose to defer for a few more years and add 8% to your benefit each year, up to age 70. (Note: This only applies to your earned income benefit—if you're collecting survivor or dependent benefits, those won't increase after you reach full retirement age.) No matter how much you earn, 15% of your Social Security benefits are tax-exempt. Retirees with moderate or higher incomes will likely pay federal taxes on some portion of their benefits.

If your income today is higher than what you expect it to be in retirement, it's a good idea use tax-advantaged accounts like traditional IRA and 401(k) accounts. These allow you to take a tax deduction each year you contribute and defer those taxes until retirement. Roth IRAs and Roth accounts within employer plans offer a different tax advantage, in that you pay taxes on contributions today so you can enjoy tax-free withdrawals in the future.

If you're on Medicare, or planning to start within 2 years, going even $1 over the income threshold could mean hundreds of dollars in additional premiums, through their "income-related monthly adjustment amount" (IRMAA).

Deciding which of your accounts to tap into, and in what order, means putting all these pieces together, while also factoring in your RMDs. These are the amounts you're required to withdraw from certain tax-advantaged accounts, including all employer-sponsored retirement plans and traditional IRAs, starting when you reach age 73.