Social Security benefits replace roughly 40% of pre-retirement income, and they are lower than many retirees expect.
Unfortunately, the problem of benefits being too low to live on is exacerbated by the fact that nearly half of all retirees may not be able to keep all of their Social Security payments.
Why do so many seniors lose a portion of the retirement benefits they earned over the course of their lifetimes by working and paying into Social Security? It’s simple: the federal government may be entitled to a portion of the proceeds.
In 2022, a staggering number of seniors will lose a portion of their Social Security income.
Most seniors do not expect their Social Security benefits to be taxed, according to The Senior Citizens League. In fact, according to a nationwide survey, 51% of respondents expect to pay no tax on their benefits at all, while less than 25% believe the government will undoubtedly collect a portion of their payments.
Unfortunately, more than a quarter of older Americans could be hit with an IRS bill, which could cause serious financial troubles if it comes as a surprise.
How many pensioners will be subject to taxation? According to The Senior Citizens League, by 2022, nearly half of all households will owe the IRS money on Social Security payments, with 47 percent of seniors having to pay last year. According to data from the Social Security Administration, up to 56 percent of seniors could face a tax bill in the coming years, up from only 10% of senior families who owed when benefits taxes were initially introduced.
Because of the large increase of retirees owing money to the IRS, more senior citizens will be left with less money to fund medical care, housing, and other essential needs. Many of these seniors may not have anticipated such a blow. And things are just going to get worse.
Why is it that a growing percentage of seniors are losing their Social Security benefits?
Because of the way benefits are taxed, the number of seniors losing part of their Social Security payments has risen from 10% to nearly 50% of all older households.
In 1983, the first tax on benefits was enacted as part of the Social Security Amendments, with the purpose of bolstering the entitlement program. The money generated is used to directly support Social Security rather than going into the general income budget. When the law was altered in the 1980s to enact these taxes, perks were only taxable after provisional income reached a certain amount.
Once provisional income reached $25,000 for single taxpayers or $32,000 for joint filers at the time of the change, up to 50% of benefits could be taxed. Half of Social Security income, all taxable income, and some nontaxable income are included in provisional income. Then, in 1993, legislation was introduced to broaden the taxation of benefits to include up to 85% of them once provisional income reached $34,000 for single filers and $44,000 for married joint filers.
Those thresholds at which benefits are taxed are still the same decades later. Unlike many components of Social Security, they are not indexed to inflation, despite the fact that earnings (and the prices of goods and services) rise each year. As a result, more seniors are receiving taxable benefits each year, and nearly half of them do not get to keep all of their retirement funds.
Future retirees will be even more likely to owe benefits than current retirees, and this additional cost must be factored into retirement planning because it means you’ll need more savings to complement the money your retirement income provides.
Most retirees overlook the $18,984 Social Security bonus.
If you’re like most Americans, you’re behind on your retirement savings by a few years (or more). However, a few little-known “Social Security secrets” may be able to help you increase your retirement income. For instance, one simple method may get you an extra $18,984 every year! We believe that once you understand how to optimize your Social Security benefits, you will be able to retire with confidence and the peace of mind that we all seek. Simply click here to find out how to learn more about these methods.
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