Earlier this week, I talked a bit about the Social Security replacement rate, how much a single person could expect to receive at their normal retirement age. As we discuss trying to make up the difference to enjoy a post retirement income which replaces working income by close to 80% we run into the Social Security tax trap, the fact that for a single person, when half your benefit plus other taxable income exceeds $25,000, the benefits become taxable. So I updated the table a bit.
|Earnings||Benefit||Replaced||$25K-1/2 Benefit||Gross $$|
Now we can see the amount of (taxable) income we can have before we hit the range where SS benefits are taxable. We also can see the amount of money needed to generate that income (using the 4% withdrawal rate we’ve discussed in the past). Note: The column “$25K-1/2 Benefit” is increased by $8950, the sum of the standard deduction and exemption for a single person. Of course if you have high enough deductions to file schedule A this will increase further. So, getting back to the discussion of pretax and post tax savings, we are closing in on the gross numbers you can save, pretax, with little risk of either hitting a higher tax bracket at retirement or running into the range where Social Security benefits are taxable. In the next few weeks, I will offer more analysis, along with observation on this scenario for couples.