The Cash Flow Clock: For Retirees - Book - Page 53
The Cash Flow Clock
income gap there will be between our income in retirement and our
expenses. It is critical to having an accurate Cash Flow Clock.
One of the unfortunate aspects of Social Security is that it can be taxed.
This is utterly ridiculous. We have paid into Social Security for decades.
We just want to get our money back. But the government has chosen to tax
us on it.
Not everyone is taxed on Social Security benefits. If we don’t have any
other taxable income (wages, pensions, rental income, business income,
dividends, IRA withdrawals, etc.), then the government assumes we can’t
afford to pay tax and Social Security is tax free.
If we have any taxable income that exceeds $34,000 for single and $44,000
for married filing joint (not very much), then up to 85% of our Social
Security benefits can be taxed.
One way to reduce, or even eliminate taxation on Social Security is to
reduce the income that we pull from tax deferred assets. If all of our income
comes from Roth accounts, then we will likely not have to pay tax on our
benefits.
Every situation is different. As we consider the possibility of doing Roth
conversions, we must account for the benefit of having less taxable income
and how that can affect the taxation on our Social Security.
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