When you retire, you leave behind many things—the daily grind, commuting, maybe your old home—but one thing you keep is a tax bill. In fact, income taxes can be your single largest expense in retirement.
Retirees anticipate receiving about 40% of their retirement income from Social Security benefits.(Photo: Debt.org)
Retirees Are Expected To Receive 40% Of Their Retirement Income
According to GoBankingRates, the majority of retirees anticipate receiving about 40% of their retirement income from Social Security benefits. However, a new report from Motley Fool suggests that your monthly Social Security benefits after retirement may be less than you anticipate if you reside in one of more than a few U.S. states (13, to be exact).
If Social Security recipients’ combined provisional income in retirement exceeds $25,000 for single filers or $32,000 for married couples filing jointly, they are required to pay federal taxes on their Social Security benefits. According to IRS.gov, provisional income consists of 50% of Social Security benefits, distributions from 401(k) accounts, and some non-taxable income like interest from municipal bonds.
READ ALSO: Retirement Plan: Retirees Should Withdraw Before April 1 To Avoid 25% Tax Penalties
Retirees In 11 states Which Have Taxes On Their Social Security benefits
As of 2023, those states are:
- Connecticut
- Kansas
- Minnesota
- Missouri
- Montana
- Nebraska
- New Mexico
- Rhode Island
- Utah
- Vermont
- West Virginia
According to WorldPopulationReview.com, some of these states, including Kansas, Missouri, Nebraska, New Mexico, and West Virginia, have some of the lowest cost of living in the country.
If you’re thinking about retiring to one of these states, you’ll need to consider whether the lower cost of living will offset the state taxes you’ll have to pay on your Social Security income.
