A Tax-free Social Security Check Gives You 7 (Extra) Years of Retirement Income

(checkout the video of this blog as well)

Preventing your social security from being taxed in retirement is one of the key components to not running out of money in retirement!

While it might seem inconsequential whether your social security is taxed in retirement or not, it really can make a huge difference in terms of retirement income.

In fact, the average retiree runs out of money 5–7 years faster if they end up paying taxes on their social security check in retirement.

That alone should be enough of a reason to strive for a tax-free social security check (and of course, a completely tax-free retirement as well).

So, it’s crucial that you figure out how to prevent your social security from being taxed, and it really isn’t that difficult to do, it just takes a little bit of long-range planning and appropriately positioning your retirement assets.

With my clients, we focus on 2 major principles to achieve a tax-free retirement, which includes eliminating the potential taxation on social security, here’s how we do that:

✅ First, we leverage the full capacity of our standard deduction in retirement.

This means that we have a target balance in our taxable retirement accounts of approximately $350,000 (this means 401k’s, IRA’s, 403b’s, etc).

Keeping your taxable retirement account at this level allows you to utilize your standard deduction to offset the minimum distributions you’re required to start taking out of this account, which essentially makes all your distributions from this account tax-free!

These minimums also allow you to fly below the “provisional income” thresholds that determine how social security is taxed (more on this in a moment).

✅ Next, we strategically reposition any taxable assets that exceed that $350k threshold into a tax-free bucket (think Roth IRAs, Roth 401k’s, and cash-value life insurance).

Every dollar that we can position into this bucket, will NOT count at all towards our “provisional income”, which means that no matter how much money we take out of our tax-free vehicles, it will have no impact on how our social security is taxed in retirement! 😏

Remember “provisional income” is the only way that social security gets taxed… so if you are not taking “too much” money out of your 401k’s and IRA’s you will be able to collect your social security check 100% tax-free.

Now, moving money from your taxable retirement accounts to your tax-free accounts is a taxable event, but there are many reasons that you should consider doing this (which I’ll address in a future blog post).

There is currently a huge opportunity to move money into a tax-free environment before the current tax cuts expire (in 2026).

There is a large capacity to move a lot of money into a tax-free environment and the huge advantage is that you get to pay the taxes now (when you know what they are), AND you get to choose which tax bracket you pay them in.

It’s not a guarantee that tax rates will go up in the future, but almost every economic expert on the planet will tell you “They have to”!

So, if you can pay taxes on your retirement money now while tax rates are at historic lows, and position yourself for a tax-free retirement with no risk of having your money eaten away by the rising tax rates, I think there is a compelling reason to do so.