My tax preparer said I shouldn't retire due to income levels. She said I would have to repay my social security. Do I need to think about it?
Prepare to retire
Related: My wife and I have $20 million and plan to retire within 5 years. What is our annual retirement allowance?
As the saying goes, timing is everything.
There is no “wrong” time of the year when you are preparing for retirement financially, mentally and emotionally. However, there are some ways to make it more Ideal Time, this may be what your tax preparer is trying to tell you.
Yes, it is true that mid-year retirement affects your taxes and social security, but it depends on some factors. Also, you won't completely "repay" your social security, but I'll do it in one minute.
I don't know what you're earning, but if you stop earning in the year and then get income from your retirement account and Social Security, your taxable income may be higher than expected.
Nathan Sebesta, a certified financial planner and owner of Access Wealth Strategies, said higher income from taxable income could affect your tax rates, Medicare premiums and the final tax bill.
“The key is to ensure that withholding and/or estimated taxes are adjusted accordingly,” he said. “As long as there is something to be resolved, mid-year retirement will not be inherently problematic. Planning ahead can be smooth and avoid any unpleasant surprises when paying taxes.”
Retirement in mid-year can also affect some other things. For example, your health insurance. If you are under 65, you have to find health care in another way.
Remember that many health insurance deductibles are based on calendar years, and even if you have already started paying, you may have to start toward a new deduction on your new plan, says Melissa Caro, certified planner for my retirement network.
She offered another benefit: the pension. If you have a pension, your expenses may be based on the formula for average three to five-year gains. If you are at peak income and you stop in the middle of the year, essentially, the year is running out of the calculations, she said.
Now for social security. Indeed, the Social Security Bureau does require people to repay benefits when they pay, but your tax preparer may have been pointing out the program’s restrictions on income when the beneficiary has already started collecting the beneficiary. Workers can ask for Social Security benefits even if they have not retired, but if they are under their full retirement age (or FRA), they may be subject to the withholding of some benefits.
For those not under the FRA throughout the year, the Social Security Agency (SSA) will deduct $2 $1 of the annual limit each year, with $23,400 in 2025. For the FRA year, the agency deducts $1 of $1 for every $3 until the FRA is above the separate limit, which is $62,160 for 2025. Just know you will indeed get the money back. The SSA will recalculate your interests after your FRA and once you reach that age, there will be no limit.
Also, remember that social security benefits can also be paid for income tax. This is a separate formula, but according to your income, the benefits that can be taxed up to taxable are taxable.
According to the consultant I asked, there is another consideration: If you are going to get a bonus, it is better to stick with it. "If your employer has a bonus or vesting plan, you won't be willing to work during the year and quit before you get that bonus if they get paid at the end of the year," said Crystal McKeon, a certified financial planner and chief compliance officer at TSA Wealth Management.
But the problem is not you It shouldn't be Mid-year retirement - why waiting is better for you, McCann said. “I think retirement is so personal to everyone that a package of statements is made that the worst time of the year doesn’t give proper attention to every aspect of a particular client’s situation.”
Your tax preparer feedback requires more context and you can now be happy to provide it.