As fewer Americans enjoy the security of a traditional pension—only 14% of private sector workers still have one—many retirees are turning to annuities to help create the reliable income streams they need throughout retirement. From my years guiding clients through the maze of retirement planning, I’ve seen firsthand how the structure of your income can influence not just your lifestyle, but also the way your Social Security benefits are taxed.
For those considering annuities before full retirement age, it’s important to note: the federal earnings test focuses on wages and self-employment income, leaving annuities, pensions, interest, and dividends outside the withholding calculation. That means, for example, a $30,000 annual annuity can allow you to sidestep benefit withholding entirely—while earning the same amount from wages could reduce your benefits by roughly $2,800.
However, the tax story doesn’t end there. The taxable portion of each annuity payment still counts toward your combined income, which can affect how much of your federal benefits become taxable. Key factors to monitor are your annual annuity income, how much of it is taxable, your other sources of income, and your annual Social Security benefits. The type of account you use and the timing of withdrawals can shape your tax landscape for years to come.
My approach centers on helping you protect assets and reduce unnecessary taxes, drawing on proven strategies with annuities and other vehicles. Retirement income is never one-size-fits-all; it’s about finding the right balance for your unique situation.
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