taxes on social security and pension

[Deleted]

How do is that stuff taxed after you retire and start collecting it?  Is it the same as regular income from a job? 

[Deleted]

I think all of your pension is taxable like regular income from a job on the federal level. My pension contribution is excluded from my taxable income, much as if I am contributing to a 401k.  85% of SS is taxable once you hit a certain income level.  Since TurboTax figures it automatically, I can't tell you that level.

In Alabama, however, my state teacher's pension will not be subject to state income tax.  It is not excluded from my Alabama taxable income so they are getting their cut now.  SS is not taxable by the state right now although stuff can change.

Roth IRAs aren't taxable by either.  401ks, 557s, etc. are taxable by both.

[Phoenix84]

My understanding is that SS is taxable at the federal level as earned income, just like a job.  Same with pensions.  Roth IRAS are not taxable after retirement, but regular 401k's and the like are.  

[Deleted]

SS is kind of weird.  The quick and dirty is to take half of what you get in SS and add it to any other earned income and anything over 25K (for filing single) is taxable. 

[tskeeter]

Depending on your income, up to 85 percent of your SS may be taxable.  The tax rate is the same rate as earned income.  Pensions are subject to federal income taxes at the same rate as earned income.  (Remember that FICA will not be deducted from SS or pension checks.)

When end it comes to state income taxes, it depends on the state.  A few states exempt SS and pensions from state income taxes.

[Deleted]

so can you explain what medicare covers in retirement?  is it like regular health insurance only from govt?  What are the deductibles and what is the percentage I would pay if something expensive happened?

[TheOtherMe]

Social security is not considered earned income for IRA purposes.

My pension is fully taxable, less an exclusion that Turbo Tax computes, of my contributions.

My current state excludes $5,000 of pension income.  When I lived in Colorado, it was $20,000 at 55 and $25,000 at, I think, 65, that was excluded.

Every state is different on that.

[Tiny]

Apr 16, 2016 18:57:02 GMT -5 tskeeter said:

Depending on your income, up to 85 percent of your SS may be taxable.  The tax rate is the same rate as earned income.  Pensions are subject to federal income taxes at the same rate as earned income.  (Remember that FICA will not be deducted from SS or pension checks.)

When end it comes to state income taxes, it depends on the state.  A few states exempt SS and pensions from state income taxes.

    You really need to know/have a good estimate of what all your retirement income will be (and it  may vary from year to year).   

From what I've heard from the people I know retiring who have said stuff about the process - if you were NOT a high income earner as in earned near the median income for your area ( say the median is 50K and you generally earned between 40K and 60K) and paid into SS (not all occupations pay into SS) and have a small pension/or other retirement savings - odds are you won't be paying taxes on the income.

On the other hand if you were a high income earner and paid into SS, and have a pension and maybe 401(K)/401(K) like accounts you might wind up paying taxes...  

So, you really need to know/have a good estimate of what your retirement income will be to determine the possible 'tax burden'.   And then you need to know how your state taxes income...

[TheOtherMe]

Apr 16, 2016 19:35:50 GMT -5 @hickle said:

so can you explain what medicare covers in retirement?  is it like regular health insurance only from govt?  What are the deductibles and what is the percentage I would pay if something expensive happened?

Since I turn 65 in the fall, I have been researching this.  Medicare Part A is free.  You can chose to pay for Medicare Part B, which I am going to do.  You also need prescription drug coverage, Medicare Part D.

For now I am keeping my insurance with my former employer.  With that and Medicare Part B, the only out of pocket expenses I will have is for prescription drugs. 

You have to look at your own situation to determine the costs if "something expensive" happens to you.  By keeping my insurance and Medicare Part B, it would cost me nothing.

[Deleted]

Just our experience here and, as others have said, each situation is very different.  We were in traditional Medicare with a supplemental policy through AARP for $250/month when our provider, like many others, stopped accepting traditional Medicare b/c of their poor payment rate.  Our provider opened up their own Medicare Advantage Plan so we joined that in order to keep our doctors.  Right now we have 0 premiums with varying deductibles and copays for doctors/hospitals/drugs.  We're okay with that as it stands, but recognize that we could face a pinch in the future.  Planning for healthcare is a moving target and you have no clue where it will go.  

We personally haven't experienced problems with Medicare but I have many friends who aren't able to access the doctors, treatments and medications their non-Medicare friends can.  Because I was advised on my last eye exam that I probably had glaucoma, and my Medicare provider was unable to see me for many months, I paid $300 out of pocket to access a specialist. 

The future of Medicare is a political crapshoot at best and it scares the carp out of me.  DH and I played by the rules, made the contributions, saved the $$ and have no idea if we will have any meaningful coverage in the future.  

[NoNamePerson]

You need to find out the specifics based on your state then federal requirements. As for Medicare there is a great site that explains the particulars to you. 

www.medicare.gov/what-medicare-covers/part-a/what-part-a-covers.html

When it comes to what is taxed in retirement, etc. every one has a different scenario based on the state they live in, type of income and on and on and on.

As for Medicare I have Medicare with Blue Cross/Blue Shield. But I can't tell everyone to go that route because even in my state BC/BS isn't even offered in every county.

Not saying the board can't help in a very general way but retirement/medicare/taxes is no way a "one size fits all"

Just look at your circumstances and work from that only but remember circumstances can change. 

[bookkeeper]

DH retired in 2014 at age 55.  So far we have taken deferred compensation and made withdrawals from his 401k.  Each are taxed as regular income.  The bright spot is that when you start drawing from your retirement funds, you are no longer contributing 7.65% to social security.  The only taxes you will pay are state and federal income tax.

DH took a lump sum from his pension instead of receiving an annuity and lifetime payments.  The lump sum is invested and we can now control our income (somewhat) from year to year by how much we draw out.  I am beginning to get income from my family trust, so we can wind back what we draw from the retirement funds this year.

We will not be able to draw social security for some time.  Let's hope the rules don't change with that institution before we get there.  DH was a high earner and paid the max into SS for well over a decade.  It will be nice to get some of that back.

The real trick to managing the retirement income/expense/tax situation is to know what you spend.  If you track your spending for the last two years before you retire, you will be armed with information to make good decisions about the money you have saved.

Personally, we have been going through quite a bit of cash lately.  DH and I did not do anything about updating our vehicles before he retired, so we have been car shopping.  We also moved 300 miles away into a different house.  Once the renovations are complete, I expect our spending to return to previous levels.  You might say we are in a transitional phase with our retirement.  After another two years or so, we should be back to our regularly scheduled lives and frugal spending patterns.

[The Walk of the Penguin Mich]

Apr 16, 2016 19:35:50 GMT -5 @hickle said:

so can you explain what medicare covers in retirement?  is it like regular health insurance only from govt?  What are the deductibles and what is the percentage I would pay if something expensive happened?

What Medicare covers in retirement really depends upon what plan you choose.  You'd pay 20% after your deductible (I don't remember what it is off the top of my head) if you just have Medicare.

There are alternatives.  Many go with Advantage plans, which are like HMOs.  You may or may not have deductibles/copays with these, it depends upon plan.  I choose to simply stay with Medicare because I need access to my orthopedic surgeon and he is not covered in any of the other plans.  Also, as I am disabled, I have had problems finding some sort of Medigap program that will cover me for that 20%, so I have been going without.  I hope when I get married, I'll be able to use TD's insurance as a gap insurance because the only plan that will cover me locally is an HMO.  As my most likely problem is going to be my hips, I want access to someone I know who can work on me well.

In addition, you are required to pick up a drug plan and the longer you wait after becoming eligible for Medicare, the more you get penalized.  I waited 6 months (I didn't realize I'd get dinged) and pay a $1 surcharge each month for those 6 months.  The drug plan really is useless for me right now, but it's required.

I think that they take $107 out of my SSDI for Medicare.  I've only had a couple visits this year, mainly to get refills for maintenance meds, and a dog bite.  I've had one round of blood work.  Total I've paid so far is under $200, but I've not needed to use it for a big problem.

[Gardening Grandma]

Everything you need to know is here
www.medicare.gov/Pubs/pdf/10050.pdf

Page 15 describs the different parts of Medicare

Part A is hospital coverage. there is no premium, The annual deductible is around $1200
Part B is Traditional Medicare and is for office visits. The premium is about $105/mo for most people (here are some exceptions). The annual deductible is about $147 this year. Medicare pays 80% of the Medicare approved amount. You are responsible for the other 20% (unless you also take out a Medigap plan)
Part C is Medicare Advantage (as described by Mich) - note that you choose either Part B OR Part C - not both.  Part C is not available in all geographic areas
Part D is presc drug coverage (I currently pay about $18/mo for that)
Parts E and the rest are various Medigap policies. (DH and I have Plan F through AARP/UHC) We pay about $180/mo for that coverage.  Part F (or Plan F) is considered a "Cadillac" policy with corresponding premiums.


The decision to take out a Medigap plan is a personal one.  If you don't take one out when you first become eligible, and then later change your mind, you may be subject to underwriting and may not be able to get one when you really need it.

My own expeience withMedicare (after six years) has been positive. We've had no providers refuse to accept Medicare and the payment is prompt and efficient. The provider sends the bill to Medicare, they pay heir 80% and then they send the rest to the Medigap plan. I can track the process on the Medicare.gov site and they are pretty fast.  

When politicians talk about "improving" (ie replacing) Medicare, they are taking a big political risk. Seniors, for the most part, are informed voters.  A while back, a scheme was floated that would replace Medicare with a voucher systerm.  Imagine helping your mother (who has Alzheimers) select coverage every year and pay with a voucher.  What about seniors who don't have an informed advocate?  The scheme was promptly shot down.
Hope this is helpful

[Tennesseer]

Apr 16, 2016 19:39:21 GMT -5 TheOtherMe said:

Apr 16, 2016 19:35:50 GMT -5 @hickle said:

so can you explain what medicare covers in retirement?  is it like regular health insurance only from govt?  What are the deductibles and what is the percentage I would pay if something expensive happened?

Since I turn 65 in the fall, I have been researching this.  Medicare Part A is free.  You can chose to pay for Medicare Part B, which I am going to do.  You also need prescription drug coverage, Medicare Part D.

For now I am keeping my insurance with my former employer.  With that and Medicare Part B, the only out of pocket expenses I will have is for prescription drugs. 

You have to look at your own situation to determine the costs if "something expensive" happens to you.  By keeping my insurance and Medicare Part B, it would cost me nothing.

If it has not already begun, be prepared for the avalanche of mail from Medicare supplemental providers and unwelcomed telephone phone calls all hours of the day, both legitimate and probably a few scammers too.

Non-stop.

[Value Buy]

This was our first full year of retirement for both of us.
Indiana residents.
We were pleasantly surprised with our refund from the state.
We failed to remember that Indiana does not tax social security.
We thought our taxable income and tax bill would be about the same as last year, as we had cashed in stocks for a down payment on a winter home.

Pleasantly surprised, we had over paid our estimated state tax by eight hundred dollars.

Bad YM'ER here. Should have known that.

On the bright side, no first quarter estimated tax bill this year. 
The 85% tax total on SS also helped lower the federal a little. 
And of course any Ira withdrawl is fully taxed as well as all our dividend income.
We have seen less money going out on a lot of things for us, so total  income needed is less than expected so far.

[nittanycheme]

Apr 16, 2016 16:15:07 GMT -5 @bamafan1954 said:

I think all of your pension is taxable like regular income from a job on the federal level. My pension contribution is excluded from my taxable income, much as if I am contributing to a 401k.  85% of SS is taxable once you hit a certain income level.  Since TurboTax figures it automatically, I can't tell you that level.

In Alabama, however, my state teacher's pension will not be subject to state income tax.  It is not excluded from my Alabama taxable income so they are getting their cut now.  SS is not taxable by the state right now although stuff can change.

Roth IRAs aren't taxable by either.  401ks, 557s, etc. are taxable by both.

While federal tax rules are the same all over, the state tax part depends on your state.  In PA, 401k contributions are post tax - so when you take it out, you don't pay taxes.  I think it is the only state to do this; maybe its an incentive to stay here after you retire?  SS isn't taxed and  pensions aren't taxed either.  Kiplinger has a state-by-state guide that gives a nice little summary for each state. 
"Pennsylvania does not tax Social Security benefits or any eligible Pennsylvania public or private pension plan. Neither does it nick distributions from 401(k)s, IRAs, deferred-compensation plans or other retirement accounts."
Read more at www.kiplinger.com/tool/retirement/T055-S001-state-by-state-guide-to-taxes-on-retirees/index.php#Vd58XAqk1ZRS7lfJ.99

[TheOtherMe]

I will go with one of two companies for my health insurance.  I will either stay with the federal employees' plan or switch to a local one.  It depends on how the cost for my prescriptions work out when I run that through the website.

[The Walk of the Penguin Mich]

Apr 19, 2016 21:45:24 GMT -5 TheOtherMe said:

I will go with one of two companies for my health insurance.  I will either stay with the federal employees' plan or switch to a local one.  It depends on how the cost for my prescriptions work out when I run that through the website.

Quite frankly, I would not use prescriptions as a deciding factor.  In my experience, (1) in a major medical issues, it is really a minor amount (for instance, my IV antibiotics and other drugs were less than 5% of my total medical costs) and (2) it is like trying to hit a moving target....what is covered this year is not covered next.

[Gardening Grandma]

Apr 20, 2016 8:51:37 GMT -5 The Walk of the Penguin Mich said:

Apr 19, 2016 21:45:24 GMT -5 TheOtherMe said:

I will go with one of two companies for my health insurance.  I will either stay with the federal employees' plan or switch to a local one.  It depends on how the cost for my prescriptions work out when I run that through the website.

Quite frankly, I would not use prescriptions as a deciding factor.  In my experience, (1) in a major medical issues, it is really a minor amount (for instance, my IV antibiotics and other drugs were less than 5% of my total medical costs) and (2) it is like trying to hit a moving target....what is covered this year is not covered next.

 Good advice. DH is on regular meds for high blood pressure. He's had to change his meds because the ins co arbitrarily changed their formularly.  I'd never use the presc coverage to make a decision.

[TheOtherMe]

I want to compare costs before even considering leaving federal employees.  If I switch to local one, it means I will be living here the rest of my days, but it will save me $150 per month--as long as it doesn't put me in the donut hole.