Strategic withdrawals may help minimize your tax burden, preserve retirement savings, and maintain steady, dependable income throughout your golden years.

Developing a strategy to maximize income while minimizing tax burden is one of the more complex aspects of retirement planning. Unfortunately, there is no simple tax savings formula that can be universally applied to every retiree.

tax planning and preparation professionals

 may be able to help you chart the optimal path to optimizing your tax bill. 

 withdrawals with taxable accounts, such as brokerage or savings accounts. These accounts are funded with after-tax dollars, and withdrawing principal typically does not trigger additional taxes.

However, postponing withdrawals from tax-deferred accounts can lead to large required minimum distributions (RMDs) for retirees who have built up a large nest egg. These RMDs may push well-funded retirement savers into a higher tax bracket and risk triggering 

Retirees with a mix of taxable and tax-deferred accounts may benefit from a more nuanced strategy, such as balancing withdrawals from both types of accounts.

Determining the best withdrawal schedule isn’t always straightforward, especially for retirees with a variety of accounts. You may be best served by discussing your options 

Leverage Tax-Deferred Accounts Strategically

A thoughtful approach to withdrawals can help retirement savers avoid unnecessary taxes from their tax-deferred accounts, such as traditional IRAs and 401(k)s. Managing your annual distributions, which are taxed as ordinary income in retirement, may allow you to remain within a favorable tax bracket and avoid significant tax spikes.

Alternatively, retirees might consider converting a traditional IRA into a Roth IRA earlier in retirement, especially if they expect to be in a higher tax bracket later. Funds in Roth IRAs are not subject to RMD requirements, allowing them to grow tax-free after a conversion.

Some retirees may also benefit from incremental conversions—sometimes referred to as laddering—to avoid a single large Roth conversion tax payment.

Another potential strategy is to begin disbursements in your 60s, before you’re required to take them, to spread your tax liability over more years.

There’s no perfect one-size-fits-all approach. The optimal withdrawal strategy for your savings will depend on your mix of accounts and assets.

Tax-loss harvesting, a strategy often used by financial professionals, involves selling underperforming investments to offset gains from better-performing assets. This practice may allow you to simultaneously reduce your overall tax liability and rebalance your portfolio to optimize performance.

Deciding when to claim Social Security benefits is a crucial part of tax-efficient retirement planning.

 can increase your monthly payments when you begin collecting. This could reduce your reliance on withdrawals from both taxable and tax-deferred savings. For couples, coordinating benefit claims can also optimize total lifetime payouts.

If one spouse earned significantly more than the other, the lower-earning spouse might choose to take their Social Security benefits early. This approach may allow the higher-earning spouse to delay their benefits, increasing their eventual monthly payout.

Life expectancy or health issues might also influence your decision, particularly if your goal is to maximize and preserve the higher-earning spouse’s survivor benefits.

Ultimately, the approach you choose should depend on your financial situation, health, and retirement goals. It is likely in your best interest to discuss these factors with experienced 

Withdrawing slightly more from tax-deferred accounts during years when your taxable income is lower can help ensure that the funds are taxed at a lower rate. This approach could prevent large required minimum distributions that have the potential to push you into a higher tax bracket later in retirement. It also reduces the risk of triggering additional costs, such as Medicare high-income surcharges.

Discuss Your Options With Experienced Retirement and Tax Planning Professionals

Which withdrawal approach will maximize your lifetime tax savings depends on many different variables, including the types of accounts you have, your total savings, your Social Security benefits, and your estate planning strategy.

Crafting a personalized withdrawal strategy that is optimized for wealth preservation can be a complex process. The team at Fullerton Financial Planning is dedicated to explaining your options and developing a roadmap you can understand.

Schedule a meeting by calling us at (623) 974-0300, or join one of our upcoming 

Tax-Efficient Withdrawal Strategies for Retirement Income

The U.S. and Arizona tax codes are extraordinarily complex, with hundreds of potential deductions and credits available to taxpayers. Which strategies will be most impactful varies significantly depending on where you are in life, your income, and your expenses.

Retirees, particularly those with substantial income and assets, can be in an enviable position thanks to the many provisions in state and federal tax law designed to alleviate the tax burden for older Americans. The downside to qualifying for so many state and federal deductions and credits is the complexity it adds to the filing process.

Tax planning is one of the many services Fullerton Financial Planning offers Phoenix, Peoria, Scottsdale, and Tempe retirees. You can learn more about your tax planning options by calling us at (623) 974-0300 to schedule a meeting.

Retirees aged 65 or older are eligible for a higher standard deduction. For the 2024 tax year, this amounts to an additional $1,550 for married individuals filing jointly or separately and $1,950 for single or head of household filers. The additional deduction is increasing to $1,600 for married individuals filing jointly or separately and $2,000 for single or head of household senior taxpayers for the 2025 tax year.

Although this extra deduction is generous and can reduce taxable income substantially for seniors who don’t itemize, many seniors enjoy greater savings by taking a more nuanced approach to deductions.

Health care often represents the largest expense for retirees in the Phoenix area. Qualifying medical expenses can be partially deducted if they exceed 7.5 percent of adjusted gross income (AGI). Some examples of eligible expenses include:

Health insurance premiums, including Medicare

Long-term care insurance premiums (up to age-based limits)

Prescription medications and medical devices

Out-of-pocket expenses for medical treatments and therapies

Charitable contributions are popular deductions for many retirees who are seeking to maximize their deductions. These contributions do not necessarily have to be in cash form. Assets such as stocks, mutual funds, or real estate can be donated directly to eligible charities for a deduction based on the fair market value of the asset.

Donors can avoid capital gains taxes on appreciated assets by donating them rather than selling them. Charities typically provide a written acknowledgment for tax purposes, but you should also keep your own records of charitable giving throughout the year.

In the case of non-cash donations exceeding $500, you will need to file 

 to report the contribution. For non-cash donations over $5,000, a qualified appraisal is also required to substantiate the value of the gift.

Be sure to consult with a tax professional to ensure compliance and maximize the benefits of your donation.

Qualified Charitable Distributions (QCDs)

 from their IRAs to eligible charities. These distributions, up to $100,000 annually per person, count toward required minimum distributions (RMDs) and are excluded from taxable income, providing a dual benefit. For married couples where both spouses are over 70½ years of age, this allows for a combined contribution of up to $200,000 annually.

If you sell a primary residence, you can 

 ($500,000 for married couples) of capital gains from taxation, provided you meet ownership and use requirements. This is especially beneficial for empty nesters or retirees who are downsizing or relocating.

 and those who are permanently disabled may qualify for this credit. Eligibility depends on income thresholds and nontaxable Social Security benefits.

Retirees in Arizona can deduct up to $10,000 in state and local taxes, including property taxes and Arizona state income taxes, when they itemize. Retirees may also be able to 

, to further reduce their state tax liability.

Retirees with a mortgage on a primary or secondary home can deduct interest payments, subject to loan size limits. This deduction can be particularly valuable for retirees with substantial real estate holdings.

Individuals paying for a qualifying dependent’s education can potentially claim the 

 (up to $2,000 annually) or deductions for qualified tuition expenses.

There are strict requirements for claiming an adult as a tax dependent. They need to either be under the age of 19 or under the age of 24 and have been a full-time student for at least five months of the tax year.

A grandparent paying for their grandchild's tuition typically cannot claim this credit unless the grandchild qualifies as a dependent. You could allow your son or daughter to claim the LLC, provided they meet the eligibility requirements and claim your grandchild as a dependent.

Retirees with foreign investments or income from abroad can 

 to offset taxes paid to other countries, avoiding double taxation. Determining 

 can be complex. Retirees who wish to use this credit often benefit from professional assistance.

Tax Preparation Can Become More Complex as You Age

One of the reasons people look forward to retirement is the simpler, slower pace of life. Although many aspects of your lifestyle may become less stressful, taxes are unlikely to be one of them.

Households with significant assets and a desire to minimize their tax burden may have significantly more complex tax filings in retirement.

Fullerton Financial Planning is here to help. 

Our tax planning and preparation professionals

 are committed to staying up to date on changes to federal and Arizona tax law. We’re familiar with all types of retirement tax strategies and can help you pursue the ideal tax plan to maximize the positive impact of available tax deductions and credits.

Call us at (623) 974-0300 to schedule a meeting to discuss your options.

The Tax Deductions and Credits Available to Retirees in Arizona 

Preparing Required Documents for Filing Taxes and Avoiding Common Mistakes

Filing your taxes can be overwhelming, especially when your income comes from a combination of sources such as annuities, retirement savings accounts, pensions, or other assets. Maximizing the benefits of all available deductions and credits adds another layer of complexity to the process.

Having the necessary documentation and avoiding common mistakes can save you time, money, and potential penalties. Partnering with an experienced financial advisor and tax planner can streamline tax preparation by ensuring proper documentation, implementing tax-efficient strategies, and reducing the likelihood of errors.

Handling tax preparation on your own can be precarious, especially if you have complex assets and retirement income from many sources. Collaborating with a financial advisor and tax preparer is typically the best way to avoid major issues. Your advisor ensures your finances are well-organized and employs strategies to make tax preparation smoother and more accurate.

However, mistakes can still happen when you work with a professional, especially if they don’t have a complete picture of your finances. You can reduce this risk by being proactive and avoiding some of the common tax preparation missteps.

Forgetting to Provide Complete Documentation

Not Informing the Preparer of Life Changes

Missing Documentation for Credits and Deductions

Assuming the Preparer Has All Relevant Details

Failing to Discuss Tax Planning Strategies

Underestimating Tax Implications of New Investments

Having Your Own Financial Team Can Simplify Your Life 

 all under one roof is a streamlined process that ensures all relevant documentation and strategies are aligned for simplified tax preparation.

Fullerton Financial Planning provides a comprehensive approach to ensure nothing in your financial life is overlooked. Our tax planners and preparers possess a clear picture of your portfolio and tax strategy, making it easier to complete an accurate return.

You can learn more about our tax planning and preparation capabilities and our other financial services by calling us at (623) 974-0300 to schedule a meeting.

Federal and Arizona State tax law is complex, with a diverse variety of deductions and credits that taxpayers of different types can potentially leverage to their benefit. The types of income a person earns, the value of an earner’s assets, and the categories of investments they hold should influence their overarching tax strategy.

The inherent complexity of the system means there is no single best tax strategy. What’s ideal for one high-net-worth individual may be entirely different from the optimal approach for another. It’s not always easy or accurate to make generalizations about tax optimization best practices, but there are some broad strategies high-net-worth individuals often adopt to maximize their tax savings.

Utilizing Tax-Deferred Accounts Where Possible

Although some types of tax-deferred accounts have income limitations, such as Roth IRAs, even high-net-worth individuals have access to a variety of tax-deferred accounts. The use of tax-deferred accounts can be particularly impactful for retirees who earn a higher income during their working years. They may pay a much lower rate in retirement when they begin drawing income from tax-deferred accounts.

Although not everyone will use charitable donations to reduce their taxable income, it is one of the more widely utilized strategies among high-net-worth individuals. The complexity of charitable contribution strategies can vary greatly depending on the taxpayer’s preferences and income. Some investment tools, like donor-advised funds (DAFs), may allow taxpayers to more easily maximize charitable giving for tax purposes.

Professional tax preparation is not reserved solely for high-income individuals and households. Even median earners can potentially benefit from deductions and credits that will reduce their tax liabilities.

Which deductions or credits a high-net-worth individual may be eligible to use will depend on the sources of their income and the types of business expenses they have. The complexity of tax law can make it difficult for the average taxpayer to identify all their potential credits and deductions on their own and use them correctly to avoid running afoul of the IRS. Professional tax preparation assistance provided by accounting professionals experienced with high-net-worth individuals is advisable.

Capital gains tax rates are significantly lower than income tax rates for high-net-worth and high-income individuals and households. There are only three brackets for capital gains rates compared to seven income tax brackets.

The rate for long-term capital gains, which is dependent on the taxpayer’s income, is either 0 percent, 15 percent or 20 percent. Short-term gains are taxed as regular income at the earner’s higher income tax rate.

How long an investor holds on to assets before selling is highly dependent on their financial situation and the performance of the investment, but as a general rule it’s preferable to pay the lower long-term capital gains rate rather than the income tax rate on the proceeds of investments.

Estate planning and the formation of trusts is often central to the tax optimization plans of high-net-worth individuals. There are more than a dozen types of trusts, from grantor retained annuity trusts (GRATs) to bypass trusts that allow couples to maximize federal estate tax exemptions. You don’t need to be extraordinarily wealthy to optimize tax planning by leveraging trusts. Even low- or moderate-income savers can make use of wisely crafted estate planning tools to reduce estate taxes.

High-net-worth individuals can use a variety of trusts and estate planning tools in creative combinations to reduce their taxable income and assets, even during their working years. It’s best to consult with experienced estate planning professionals to develop a dependable plan that will provide long-term protection with the ideal level of control and access for your situation.

Some high-net-worth individuals may benefit from income-shifting strategies, which may entail gifting assets to family members in a lower tax bracket or leveraging family limited partnerships to reduce their taxable income. It’s important income shifting strategies are implemented with the help of experienced accounting professionals who can ensure everything is done within the boundaries of tax laws and regulations.

Professional Assistance Is Key for Optimizing Tax Strategies

Tax law in the United States is extraordinarily complex, which is why high-net-worth individuals often work with experienced tax preparers and financial planners to develop thorough plans. Periodically consulting with your tax preparer and financial planning advisors can help ensure your wealth is consistently optimized and maintains compliance with the latest laws and regulations.  

Our Financial Advisors Excel at Helping High-Net-Worth Households Protect Their Assets

The team at Fullerton Financial Planning take a holistic approach to investment management and 

. Our financial advisors help savers develop comprehensive plans that incorporate 

 to provide long-term financial security and peace of mind. Schedule a free consultation today by calling 

Optimizing Tax Strategies for High-Net-Worth Individuals

Determining a baseline for retirement savings in the United States is difficult due in large part to the nation’s diversity. A host of variables, from age and lifestyle to cost of living and income, can influence what constitutes adequate savings.

The median retirement savings for all Americans was $86,000 according to the Federal Reserve’s 2022 Survey of Consumer Finances. The average balances of retirement savings varied significantly across different age groups, with those under 35 having an average balance of only $49,130 and those 75 and older having an average balance of $462,410.

Retirement savings balances don’t dictate annual tax burden; that is determined by taxable income, which may come from a variety of different sources. Social Security benefits, traditional IRA and 401(k) withdrawals, pension income, capital gains and dividends from investments and other income streams are all taxable, even in retirement.

There is always uncertainty in retirement, even for investors with several hundred thousand dollars saved. Healthy Americans in their 70s could live for two or even three more decades. What might have seemed like a lot of money at the outset of retirement could prove inadequate.

Strategies that minimize a retiree’s tax burden can be valuable in the long run and may help savers keep more of their savings intact.

How Income Affects a Retiree’s Tax Burden

Retirement savings tax strategies can be heavily influenced by a person’s income during their career and the sources of their income in retirement. A tax-efficient strategy for someone making less than the Roth IRA income limit throughout their working years and a tax-efficient approach for an above-average earner may look very different.

For higher-income savers, maximizing traditional 401(k) or IRA contributions can be beneficial, even though withdrawals from the account in retirement will be taxed as normal income.

Some workers might also want to look into establishing a backdoor IRA, which entails creating a traditional IRA with after-tax dollars then converting it to a Roth IRA. Although there can be significant tax advantages in a backdoor IRA, retirement savers should be cautious. Any gains in the traditional IRA are taxable in the year of the transfer or transition to a Roth IRA.

Workers who do qualify for a Roth IRA or Roth 401(k) may want to consider using a Roth IRA from the start, or for as long as they can prior to reaching the AGI limit. Savers early in their work life who believe they will earn a higher income once they retire could experience greater tax savings by taking advantage of tax-free Roth IRA or Roth 401(k) withdrawals in the future.

Higher-income workers who don’t qualify for Roth retirement savings accounts can still strategically invest in assets that generate capital gains rather than regular income. The taxes on long-term capital gains and qualified dividends can be significantly lower than ordinary income tax in retirement.

The same is true for lower-income individuals. Many savers may even qualify for the lower long-term capital gains rate of either zero percent or 15 percent.

For individuals who have a lower tax rate in retirement as well as Roth accounts with tax-free growth and withdrawals, it often makes sense to adopt a staggered withdrawal strategy. This may mean drawing from taxable accounts first, followed by tax-deferred accounts. This approach allows the investments in Roth accounts to grow tax-free for as long as possible.

Higher-income individuals often benefit from discussing their required minimum distribution timing with a tax professional and retirement investment manager. They may also want to consider utilizing qualified charitable contributions directly from their IRAs to further reduce taxable income.

Retirees with high income from different sources may want to pursue capital gains harvesting during lower-income tax years. This involves selling appreciated assets during years when they’re in a lower tax bracket, which locks in the taxable capital gains at the lower rate, then repurchasing them.

Savers should discuss their options with a tax preparer to find out if they qualify for tax loss harvesting, tax credits or deductions.

There are many potential tax strategies workers saving for retirement and current retirees may utilize. The strategies that provide the greatest long-term tax advantages depend highly on each person’s or household’s unique situation. If you are interested in receiving personalized analysis from local Phoenix 

, contact Fullerton Financial Planning at (

Tax-Efficient Retirement Planning

The vast majority of income tax filers in the United States, regardless of their age, would prefer to minimize their tax burden. How you can go about maximizing deductions will vary based on your assets, income sources and your annual expenses.

There’s no straightforward, one-size-fits-all approach due to the diversity of financial situations among tax filers. Some Phoenix tax filers can afford large charitable contributions while others might have particularly high medical expenses due to a family illness or injury. Both types of tax filers may want to take advantage of itemized deductions to reduce their taxes, but how they go about it may be different.

Although the approach might vary, there are some high-level factors to keep in mind when you begin looking for ways to maximize tax deductions.

If your income fluctuates from year to year, it’s likely a good idea to keep an eye on your tax bracket and be cognizant of how close you may be to reaching a higher or lower marginal tax rate (the rate you’ll pay on your highest dollars of taxable income). Knowing where your income puts you may allow you to strategically plan your income and deductions to potentially decrease your tax rate for the current year or future years.

Have You Maximized Your Retirement Contributions?

Some workers may benefit from maximizing their contributions to pre-tax retirement savings accounts like 401(k)s or traditional IRAs. Contributions to these types of accounts reduce your taxable income, regardless of whether you end up itemizing deductions.

Although Roth IRAs and 401(k)s are not tax deductible and are funded with after-tax dollars, they do offer tax-free growth of invested funds, as well as the potential for tax-free withdrawals in retirement. Those who meet income eligibility requirements and are taking a long-term view on positioning themselves for a reduced tax burden in retirement may want to investigate these types of investments during their working years.

Consider Maximizing Health Savings Account (HSA) Contributions

While maximizing HSA contributions won’t be the best move for everyone, these tax-deductible accounts are similar to Roth retirement savings accounts in that they offer tax-free growth and tax-free withdrawals for any qualifying medical expenses.

How much you or your family will use HSA funds depends on your health insurance and medical needs. These accounts can be a useful way to minimize your taxable income if you know you’ll need to spend money on healthcare expenses, or you just want to make sure you’re prepared for the unforeseen.

Itemized deductions allow taxpayers to decrease their taxable income, which can potentially allow them to benefit from a lower tax bracket and marginal tax rate. Itemizing deductions is the alternative to the standard deduction, which is a fixed deduction amount that’s based on filing status. Itemized deductions require detailed tracking of eligible expenses throughout the year.

Although there are many potential itemized deductions, some of the more common include:

You might not know whether to take the standard deduction or itemize until closer to the end of the year, which is why it’s likely in your best interest to track any potential deductions throughout the year. Doing so may make it easier to decide when you start preparing your tax return. Keep in mind that itemizing requires good recordkeeping and organization, as you may need to substantiate your claims to the IRS.

While tax deductions decrease the amount of income subjected to taxes, tax credits reduce the amount of taxes you owe after they have been calculated. They provide a dollar-for-dollar reduction in tax liability in either a refundable or non-refundable form.

A refundable tax credit means that if what you owe goes into the negative, you can get the difference refunded, while non-refundable credits can only reduce your tax liability to zero.

Your preferred capital gains tax strategy may vary depending on your income sources, age and financial situation. Every taxpayer is assigned a short-term and long-term capital gains rate based on their income tax bracket. The short-term rate is the higher rate and is applied to any gains on assets sold less than a year after purchase.

Many taxpayers choose to hold onto investments for at least a year before selling to avoid the higher rate, but how you approach capital gains or investment loss harvesting may vary depending on your circumstances.

Get Guidance on Financial Planning, Investment Management and Retirement Planning in Phoenix

If you’re interested in finding ways to minimize your taxes or position yourself for a reduced tax bill in retirement, the financial advisors at Fullerton Financial Planning may be able to help. We make 

 and are ready to answer your questions and provide solutions. Call us at 

How to Reduce My Taxes and Maximize My Tax Deductions

While some aspects of life become simpler in retirement, taxes are not necessarily one of them. Determining whether you owe income tax on your Social Security Benefits and the amount you owe can require a bit of extra work. It’s one of the reasons why so many retirees turn to income tax preparers with experience assisting SS beneficiaries.

Before performing the calculations, tax filers need to ascertain their:

You can use that information to ascertain your “combined income.” Single filers with a combined income between $25,000 and $34,000 are required to pay income taxes on 50 percent of their Social Security benefits. Filers with combined income over $34,000 owe taxes on up to 85 percent of their Social Security benefits. Those with a combined income of less than $25,000 don’t owe income tax on any of their Social Security Benefits.

The income limits are slightly higher for married filing jointly beneficiaries. Couples with a combined income between $32,000 and $44,000 owe tax on 50 percent of their benefit while those with a combined income over $44,000 will need to pay taxes on up to 85 percent of their benefits. SS benefits typically are not taxable for couples with a combined income of less than $32,000.

Combined Income = Adjusted Gross Income + Non-Taxable Interest + Half of Social Security Benefits

To get your adjustable gross income, you need to add up all your income and subtract eligible adjustment deductions. Income categories may include:

Many adjustments are most commonly available to people who are still working, such as contributions to traditional IRAs, student loan interest or some of your self-employment taxes or health insurance. It may be in your best interest to consult with a tax planner for clarification if you’re not sure whether certain expenses qualify for inclusion in your adjusted gross income calculation.

Although non-taxable interest is not itself taxed, how much of it you earn does influence the combined income equation and, as a result, does have tax implications. 

Some examples of non-taxable interest might include:

If you have questions about the taxability of any of your interest earning holdings, or whether that interest should be calculated to reach your combined income, you should consult with an experienced accountant or tax preparer. 

Depending on your income streams, retirement savings and benefits, calculating your combined income may be complicated. Gathering all the relevant documents in advance, including your SSA-1099, 1099 forms for interest and dividends and any other income records, can make the process easier. A professional may also be able to identify relevant deductions that could potentially reduce your adjustable gross income.

It may be helpful to keep this calculation in mind when deciding whether to work in retirement or how to structure your income after you begin collecting your Social Security benefits. Your earnings through part-time jobs or freelancing could potentially increase your tax burden due to a higher combined income calculation.

Timing of income and distributions from retirement accounts as well as tax-deferred accounts like Roth IRAs may allow you to better modulate your combined income and have a positive influence on your Social Security benefits taxes.

Get Help With Your Social Security or Medicare Benefits Planning in Phoenix

? Are you interested in learning more about tax-advantaged Social Security Benefits or 

? The financial advisors at Fullerton Financial Planning are here to provide clarity and answers. 

Calculating Taxes on Social Security Benefits

It’s not exactly accurate to say Social Security is taxed twice, but it can certainly feel that way. This is often attributable to people seeing Social Security being withheld during their entire working life, then finding out in retirement that those earned Social Security benefits are themselves being taxed as income.

Social Security is essentially a mandatory retirement savings program funded by the Federal Insurance Contribution Act (FICA) taxes you and your employer pay each year. Conceptually, the government views it as a savings account for your retirement rather than a traditional tax on income to fund the government. In that respect, the benefit payment you receive from that “savings account” is only taxed as income when you finally receive it in retirement.

The program has been running at a deficit in recent years, meaning more is paid out in SS benefits than is taken in via the Social Security portion of FICA taxes paid by current workers. In their 

, the SSA says the program was paying monthly benefits to 66 million people in total. Approximately 181 million workers paid FICA taxes that year.

They estimated that more than 40 percent of SS beneficiaries paid income tax on their benefits, and those taxes go into the Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) Trust Funds as well as the Medicare Hospital Insurance Trust Fund.

What Does the Social Security Trust Fund Depletion Mean?

Depletion of the Social Security trust fund, which is projected to occur in 2034, doesn’t mean the fund will be entirely empty. It simply means that, in that year, the fund’s income is projected to only cover approximately 80 percent of scheduled benefits. Unless legislation is passed to correct the issue in some way, SS beneficiaries may experience a roughly 20 percent reduction in their benefit payments once depletion occurs.

Potential Solutions to Avert Depletion or a Reduction in Benefits

There are a variety of potential legislative solutions that have been floated to avert the depletion cliff. One potential solution is to increase the FICA tax rate (

) or lift the cap on taxable wages. The portion of this tax that goes to funding Social Security is 12.4 percent – 6.2 percent paid by the employer and 6.2 percent paid by the employee.

, if passed right away, would make up for the projected shortfall. If the tax increase was put off until the shortfall arrives in 2034, the SS part of FICA would need to increase to an estimated 16.55 percent to account for the 20 percent shortfall.

The exact estimated figures change annually due to the variety of factors that play into benefit calculations, from inflation adjustments to the number of workers paying into the funds and the number of retirees claiming benefits.

An alternative solution may be to strategically reduce benefits. Some potential ideas that have been suggested include:

Many experts advocate for a combined approach to minimize the impact on taxpayers and beneficiaries. That could entail slightly increasing the Social Security part of FICA taxes, raising the retirement age (especially for younger workers) and taking steps to tweak the benefit formula, especially for high earners.

There Are No Easy Solutions – But Social Security Isn’t Going Away

Social Security is a hot-button issue. Older people are the 

 in the nation, and politicians on both sides of the aisle go to great lengths to avoid alienating this vital demographic.

The doomsaying and inflammatory rhetoric can sometimes make the situation sound more dire than it is. While a 20 percent reduction in benefits would be a serious problem for many retirees on a fixed budget, it’s a far cry from a complete loss of Social Security.

Even policymakers who advocate for changes typically go to great lengths to reassure current and near-future retirees that they won’t lose their benefits or have their full retirement age increased. In fact, the last time the full retirement age was increased was more than 

, when FRA was increased from 65 to 67 based on year of birth.

Current retirees in Phoenix, as well as those who are planning for future retirement, who are concerned about their future benefits may find speaking to an experienced 

 has extensive experience helping savers plan for the future and maximize their benefits in retirement. Call us to speak with a financial advisor today. 

Why Is Social Security Taxed Twice?

Yes, Social Security is taxed as income for retirees – if the retiree’s combined income meets the minimum requirements. Combined income is your adjusted gross income (AGI) and nontaxable interest combined with half of your Social Security benefits.

 or joint filers with a combined income of $32,000 to $44,000 will have to pay income tax on up to 50 percent of their benefits. Single filers with a combined income over $34,000 or joint filers with a combined income over $44,000 may need to pay taxes on up to 85 percent of their benefits.

 through the SSA to make the process easier. Social Security beneficiaries should receive a copy of their SSA-1099 every January, but you can also request a copy through the 

Social Security Administration’s website

Marginal tax rates can hit retirees particularly hard as they reach the taxable income thresholds. If you’re on the edge of either the 50 percent or 85 percent threshold, it may be in your best interest to speak with a financial advisor or professional tax preparer for guidance.

Unlike traditional IRAs, Roth IRAs are funded with after-tax dollars, meaning they aren’t taxed as income when they’re withdrawn and not included in your combined income calculation. Whether it makes sense to convert a traditional IRA into a Roth IRA in retirement and take the one-time tax hit depends on the unique circumstances of your income and financial situation. It’s likely in your best interest to discuss this and all your other options with experienced 

Should You Continue Working After Beginning to Receive Your Social Security Benefits?

This can be a tough question for many single filers and couples, especially given how combined income is calculated. An important factor to consider is when you begin taking benefits. Doing so before you reach full retirement age can have consequences, but it still might be the preferred choice for some workers and retirees.

The Social Security Administration considers you retired once you begin receiving your SS benefits. People who begin collecting their benefits prior to reaching full retirement age can potentially receive a reduced benefit amount if their annual earnings exceed the limit set by the SSA.

The reduced benefit amount varies depending on how early you begin taking SS. The minimum age to start receiving benefits is 62. You can find the full breakdown of the benefit 

If you begin collecting your benefits prior to reaching full retirement age (FRA), the SSA deducts $1 from your benefit payments for every $2 you earn above the annual limit. For 2024, the limit is $22,320.

You can find a detailed chart of full retirement age based on birth year on 

the Social Security Administration’s website

, but the current breakdown as of 2024 is:

The deduction for wage earners is lower, but still present, during the year you reach full retirement age. The SSA will deduct $1 from your benefits for every $3 of income you earn over the 2024 limit of $59,520, but only for the months prior to reaching FRA.

Once you do reach full retirement age, your earnings will no longer reduce your benefits.

Are You Eligible for Social Security Benefits in Phoenix?

Social Security benefit strategies can be complex, especially given the unique rules regarding when you can begin taking benefits, the ways in which other earnings may reduce your pre-FRA benefits and the impact combined income can have on your marginal tax rate.

Is Social Security Considered Retirement Income for Tax Purposes?

How the Tax Brackets Different From the 2022 – 2023 Tax Year?

Post-pandemic inflation had more of an impact on tax policy than some people may realize. The IRS did make some adjustments to avoid bracket creep, or the phenomenon where people are inadvertently pushed into a higher bracket because their income was inflation-adjusted. In practical terms, this means preventing people from paying cost-of-living adjustments to the government. 

For example, the 22 percent tax rate for the 2022 – 2023 year for a single filer was $89,075. Increasing the maximum for the 22 percent bracket to $95,375 helps ensure people near the edge aren’t punished for small bumps in pay, like the raises they might receive to compensate for inflation.

Welcome to Our Financial Tips Blog

Tax-Efficient Withdrawal Strategies for Retirement Income

The Tax Deductions and Credits Available to Retirees in Arizona

Preparing Required Documents for Filing Taxes and Avoiding Common Mistakes

Optimizing Tax Strategies for High-Net-Worth Individuals

Tax-Efficient Retirement Planning

How to Reduce My Taxes and Maximize My Tax Deductions

Calculating Taxes on Social Security Benefits

Why Is Social Security Taxed Twice?

Is Social Security Considered Retirement Income for Tax Purposes?

Tax Brackets for 2023 – 2024

What Should I Do With an Unexpected Refund From the IRS?

Ways to Maximize Your Tax Savings When Approaching and In Retirement