Posted by I have lived a modest lifestyle and saved for my retirement. Next year (2027), I plan to apply for social security. At the same time, I will apply for Medicare. No longer will I have to live on my investments. Life will be great, right? Not so fast. Uncle Sam will want his cut. As of 2025 my annual SS benefit will be $30,300. Assuming that my dividend income stays the same, my annual income will be $45,000. If I want to stay under the 22% federal income tax bracket, the single filer limit in 2025 was $48,475.
In 2025, the standard deduction was $15,750. My taxable income would be $29,250. But you also have to calculate how much tax there will be on social security. The formula is Total Income + 50% SS determines how much of your SS benefit gets taxed. If you are under $25K, there is no tax on SS. If you are between $25K and $34K, 50% is taxable. If you have over $34K, 85% is taxable.
For me, it would be $15,000 + $15150 = $30,150. Which means 50% of my SS would be taxable. There is also a $6,000 senior deduction that can be applied to reduce or eliminate the tax you owe. But that will expire in 2028. Applying the standard and senior deductions, my taxable income would be $30,150 – $21,750 = $8,400. You can see how complex this gets. The goal is to stay in the 50% SS tax bracket, which keeps you in the 12% federal tax bracket. If my calculations are correct, I would owe the IRS $1,008.
I can now calculate how much can be taken out of my IRA. A safe amount would be under $3,000. This would keep the SS tax at 50% and changes the taxable income to $11,400. I would owe the IRS $1368. My annual income from all sources would be $48,000 with a manageable tax burden. That is until age 75, when RMD’s kick in. Instead of $3000, I will be required to take $26,000 out of my IRA, and that amount will increase each year. That’s when all the tax planning breaks down. The 22% federal tax bracket and tax on 85% of SS benefits will be unavoidable. Right now, that is too far out to even plan for.