Many Retirees Don't See This Unfortunate Social Security Surprise Coming

If you’ve been dreaming of retirement and waiting to collect Social Security, you’ll likely be excited when the day finally comes that you can start getting deposits into your bank account.

Unfortunately, when the Social Security money starts coming, you may be in for a very distressing surprise. The issue is, you could find yourself facing a substantial unexpected cost if you weren’t aware of it during your retirement planning process.

You don’t want to be caught off guard, so read on to understand why so many retirees end up dealing with an unpleasant surprise during their senior years.

Retirees must be ready for this potential Social Security surprise

The Social Security surprise that retirees need to prepare for has to do with taxes on benefits.

Now, many people assume their benefits won’t be taxed because Social Security benefits are earned through years of paying in taxes while working. Since you’ve already paid Social Security tax in exchange for getting these benefits, you may assume you’ve done your part for the IRS.

President Trump also pledged to eliminate taxes on Social Security, so retirees have even more reason to believe they won’t have to worry about taxes coming out of their checks. Unfortunately, that is simply not the case, and far too many seniors are going to find themselves with unexpectedly smaller Social Security benefits due to their IRS bill.

Will you be hit with a Social Security tax surprise?

So, do you need to plan to take more money out of your retirement accounts due to the fact that you’ll unexpectedly be hit with taxes on your Social Security benefits?

The answer to this depends on your “provisional” income. Provisional income is half of your Social Security checks, all taxable income, and some nontaxable income like MUNI bond interest. If your provisional income is above:

• $25,000 for single tax filers
• $32,000 for married tax filers

You can expect that at least some of your Social Security money is going to be taxed. Sadly, these thresholds are not indexed to inflation, either. So more retirees face this issue every single year.

You need to prepare for this unpleasant surprise so you don’t expect Social Security to provide more income than it does — and possibly end up taking too much out of your 401(k) or IRA to cover the shortfall. Taking steps while working, like investing in a Roth IRA, could potentially help you avoid this tax hit, so it’s worth thinking about whether that makes sense for you.