Social Security Risk: Connecting with Clients during Tax Season is a Must

Retirement is all about taking the key risks off the table. Taxes are one risk that with proper education and homework, can be minimized dramatically. Lifetime income annuities are great products for your clients to decrease their risk of overpaying Uncle Sam and can provide guaranteed lifetime income for the entirety of their retirement. While tax season is in full swing, connect with your clients by discussing their retirement taxation plan and you will be amazed at where the conversation will go.

Social Security and Taxes

Optimizing their Social Security benefit is more essential now than ever before for your clients. What can surprise many people is that a portion of their benefit is susceptible to taxation. For a majority of Americans, it is necessary for them to work and earn wages in retirement. Before your clients start working full, or part-time, it’s important to note a few things. There are 2 major ways that your social security benefit is affected. The first is the Social Security earnings test:

  • If an individual is under his or her full retirement age (FRA) for the entire calendar year, than $1 in Social Security benefits will be deducted for every $2 that is earned above the income of $15,720.
  • If an individual reaches his or her full retirement age during the calendar year, then $1 in Social Security benefits will be deducted from every $3 that is earned above the annual limit of $41,880.
  • There is no earnings limit that exists beginning with the month in which an individual reaches his or her full retirement age.

In addition to the Social Security earnings test, people may also be subject to taxation of their social security benefits. In fact, up to 85% of your social security benefits may be taxed! The government looks at your provisional income. Provisional income could be considered half of your Social Security benefit, plus all other taxable income which would include dividends, realized interest, capital gains, and municipal bond interest. Many people have no idea that their tax free bond interest counts! When I was an advisor, I was able to help many middle income seniors reduce or eliminate the taxation of their social security benefits simply by moving tax free bond money or CD money into annuities.

While there are strategies that have changed, some things have remained the same when receiving benefits. If this is the only article that you have read about Social Security and how the program prepares you and your clients for retirement, then make sure you look at this chart twice:



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