Understanding How Your Investments Affect Social Security Benefits
When planning for retirement, it’s essential to consider how your investments will impact your Social Security benefits. Many people wonder if the interest, dividends, and capital gains from their taxable brokerage account will count toward the Social Security earnings limit.
The Answer: Investment Income Doesn’t Affect the Earnings Limit
Only wages from employment or self-employment count toward the exempt earnings limit for those who file for early Social Security. Investment income, on the other hand, won’t result in benefit withholdings. However, it can influence the taxation of your benefits and other aspects of your retirement income strategy.
How Working Affects Your Benefits
If you claim Social Security before full retirement age (FRA) and continue working, your benefits may be temporarily reduced if your earned income exceeds certain limits. In 2025, the limit is $23,400, and $1 is withheld for every $2 earned above this threshold. But don’t worry, this reduction is not permanent, and you can recoup the withheld benefits once you reach FRA.
Taxation of Social Security Benefits
Investment income, such as interest, dividends, and capital gains, can affect the taxation of your Social Security benefits. Your combined income, which includes your adjusted gross income (AGI), half of your Social Security benefits, and any tax-exempt interest, determines how much of your benefits are subject to income tax.
Passive Income and Social Security
Passive income from investments doesn’t count toward your exempt earnings limit for Social Security. However, it does increase your AGI, which can impact the taxable portion of your Social Security benefit.
Maximizing Your Benefits
If you’re married, divorced, or widowed, you may qualify for additional benefits, such as spousal or survivor benefits. Understanding how these benefits integrate with your own can help ensure you’re not leaving money on the table. Consider working with a financial advisor to create a tax-efficient retirement income plan.
Emergency Funds and Inflation
Remember to keep an emergency fund on hand in case you run into unexpected expenses. A high-interest savings account can help you earn compound interest, but be aware that inflation can erode the value of liquid cash.
Getting Professional Help
If you need help creating a retirement income plan that includes your Social Security benefits and other assets, consider connecting with a financial advisor today. They can help you navigate the complex rules of Social Security and create a personalized plan for your retirement goals.
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