What’s the tax torpedo all about?
The tax torpedo hits when your combined income reaches a certain threshold. It triggers additional taxation on your Social Security benefits.
For single filers with combined income above $34,000 or married couples filing jointly above $44,000, up to 85% of Social Security benefits can be taxed. Even if your income is between $25,000 and $34,000 as an individual or $32,000 and $44,000 as a couple, 50% of your benefits might still be taxed.
This scenario is more common than you may think, with 40% of Social Security beneficiaries paying taxes on their benefits. Plus, the rate at which you’re taxed can also be higher than you’d initially expect if your provisional income calculation bumps you into a higher Social Security tax bracket.
If you’re already worried about where you’ll land with taxes in retirement, rest assured there are accredited professionals who can help.
Advisor.com connects you with vetted financial experts who can help you find the optimal combination of accounts and assets for your financial objectives.
Their online platform is a streamlined way to find the best advisor for you and your needs. Once matched, you can schedule a free, no-obligation consultation to discuss your goals and develop strategies to secure your portfolio.
Yet another deadly blow strikes if you're in a state that charges income tax as well. Here’s the good news: if you’re using a Roth account instead, you can avoid that tax torpedo’s devastation. There are tons of other ways you can reduce your reliance on Social Security in retirement overall, such as developing a healthier and more robust retirement portfolio.
Orman also emphasized the importance of regularly reviewing your financial portfolio in a recent blog post. “You should log in and make sure your mix of investments — stocks/bonds/cash/ — is in line with your long-term goals.”
Why Roth IRAs matter
Qualified Roth IRA withdrawals (after age 59-and-a-half and meeting the 5-year rule) are tax-free, and they don't count towards that previous income calculation.
Orman is a big proponent of Roth IRAs and encourages all her followers to get as close to the maximum contributions as possible. In a blog from last year, she wrote, “If you don’t typically contribute up to the maximum, I hope you will consider pushing yourself to increase your retirement savings.”
Because Roth IRA withdrawals are tax-free, they keep your combined income lower, helping you to hopefully avoid triggering the Social Security taxation thresholds. That’s where assets that protect you from inflation or market volatility can lend a big hand.
A gold IRA, for example, allows you to hold physical assets like gold, providing a hedge against both the ups and downs of the market and inflation. Although it will be subject to income tax and will contribute to your taxable income upon retirement, a gold IRA can be a risk-adjusted complement to a Roth IRA, which could be riskier depending on the assets you hold inside.
Priority Gold is a leading dealer of precious metals with an A+ rating from the Better Business Bureau and a 5-star rating on Trust Link.
With over 20 years of industry experience, their experts can answer any questions you may have and give you a complete step-by-step guide on how to set up a gold IRA yourself.
More ways to secure your retirement
When planning for retirement, you don’t just want to consider the types of accounts available, like Roth IRAs or gold IRAs. Make sure you’ve got the right stocks, ETFs, and savings plans bringing in those returns for a comfy retirement.
IRAs can provide certain tax advantages, but if you aren’t properly investing within them, they won’t help much.
“I encourage you to keep returning to this thought exercise,” Orman wrote in a recent LinkedIn post. What are the financial steps you might take today to be kindest to your future older self? The 88-year-old, the 90-year-old, the 95-year-old?”
Add real estate to your retirement portfolio
Beyond investing in the stock market, real estate is a fantastic way to diversify your portfolio for retirement and trim back any reliance on Social Security.
But it can be cumbersome, costly and very admin-heavy.
If you want to buy property in America, the average cost is $495,000 across the country. For most, a 40% down payment on that price tag just isn’t feasible. And that could mean you’re looking at a mortgage rate of around 6%.
Then there’s the added cost of maintenance and upkeep. That averages around $18,000 a year, which is steadily climbing and already 26% higher than four years ago.
You can circumvent that costly mess with First National Realty Partners (FNRP), which allows accredited individual investors to access institutional-quality commercial real estate investments — without the leg work of finding deals yourself.
You can even invest through a Roth IRA — meaning you’ll receive tax-free payments and distributions that won’t be added to your combined income calculation.
FNRP has developed relationships with the nation’s largest essential-needs brands, including Kroger, Walmart and Whole Foods. You can engage with experts, explore available deals and easily make an allocation in an all-in-one personalized portal.
Another way to tap into the income-generating potential of real estate is through Arrived. Their platform allows you to invest in shares of rental homes and vacation rentals without taking on the responsibilities of property management or homeownership.
With [Arrived], you can browse a curated selection of homes, each vetted for their appreciation and income potential. Once you find a property you like, you can choose the number of shares you want to buy and start investing in real estate with just $100.
Continue investing and saving
You can continue to contribute to low-risk investments even in retirement. Conservative vehicles like certificates of deposit can offer as much interest as a high-yield savings account, and often more if you opt for a longer term.
For instance, Discover offers certificates of deposits with maturities ranging from three months to 10 years.
Right now, Discover is offering 4.10% APY on a 12-month term — much higher than the average 0.05% APY offered on some accounts offered by the other big banks.
You can also check out Moneywise’s top picks for Best High-Yield Savings Accounts of 2024 to compare more options for growing your savings safely.
There are also great ways to invest your spare change. Acorns is an automated investing app that makes building a smart portfolio easily accessible.
All you have to do is sign up and follow the steps to link your bank account. The app will automatically round up the total cost of your purchases and invest the difference in a portfolio of ETFs. So, all it takes to help strengthen your portfolio and save for retirement is to make your everyday purchases and watch your money grow. These simple, effective tools for growing your savings are sure to be Suze-approved.
If you want a low-cost way of investing, try using Public.com.
Public.com is a self-directed brokerage platform that charges no commissions on trades. You can also get real-time insights and social features that help you stay updated on market trends. What’s more, you can choose from a basket of investments, such as stocks, ETFs, bonds and alternative assets.
You can start investing with just $1 within minutes.
