Chances are good Social Security benefits will be very important to you in retirement. Obviously, you'll need to know how much income those benefits will provide so you can make a realistic assessment of whether you're ready to leave the working world and support yourself without earning wages.
Unfortunately, millions of retirees across America risk losing some of the benefits they expect to receive. Here's why.
If you live in one of these states, you could lose some of your benefits
Retirees are at risk of losing a part of their Social Security checks if they live in one of the 13 states that charges state tax on these benefits. The 13 states that tax Social Security income include:
- New Mexico
- North Dakota
- Rhode Island
- West Virginia
Now, if you live in one of these locations, it's not necessarily a given that you'll always lose part of your retirement benefits to your local government due to its tax rules. That's because many states don't start imposing a tax on Social Security funds until retirees hit a certain income threshold. Most often, it's the upper middle class and the wealthy who find themselves losing part of their retirement money to taxes, while lower-income retirees won't have this concern.
Still, there's a chance you could see some of your benefits taken by your state if you live in one of these 13 locations. And if you want to make sure that doesn't happen, it's a good idea to visit your state's Department of Revenue so you can find out exactly what the rules are for taxation of benefits.
If it turns out that you'll lose part of your Social Security funds, consider whether a relocation in retirement could be worthwhile -- especially if your state has other unfavorable tax policies that affect the income you'll have as a senior. When you're on a fixed income, every dollar counts and losing part of your retirement checks to taxes could be a big hit you simply can't afford.
And if you're considering relocation, before you decide to move, look at the big picture of how all of your income sources will be taxed in states you may move to -- not just Social Security. Some states have no income taxes at all, while others have more favorable rules for pension income. You need to know what your total tax bill will be.
The bottom line is, tax planning is a crucial part of making a decision about where to live in retirement. And it's best to do this research early as you're making decisions about your financial future.
That's particularly true if you're likely to fall short of having enough income -- especially with the government taking a piece of it. Reacting quickly can preserve your nest egg, and a move to cut your state taxes could make all the difference in how far your Social Security checks go toward providing you with a comfortable future in your later years.