Social Security and taxes
For a household with $2 million to $5 million saved, the Social Security decision is rarely about whether the money is needed. It is about tax: how much of the benefit will be taxed once it starts, what the years before it starts are worth for Roth conversions and gains, and how the claiming age changes both.
Published September 11, 2026 by Flames Financial Planning. 8 min read.
Short answer: Up to 85% of Social Security benefits are taxable once "combined income" (half of benefits plus all other income, including tax-exempt interest) exceeds $44,000 on a joint return, thresholds that have never been indexed, so nearly every household this article is written for is at the 85% maximum. Delaying from full retirement age (67 for anyone born in 1960 or later) to 70 raises the benefit about 8% a year, to 24% more, and leaves the years in between free of benefit income, which makes them the cheapest years to convert to Roth and realize gains. The claiming decision is made together with the withdrawal plan, not before it.
The formula
Federal tax on Social Security is set by a formula that compares "combined income" with two thresholds. Combined income is your adjusted gross income (before benefits) plus tax-exempt interest plus half of your benefits.
| Combined income, joint return | Combined income, single | Portion of benefits taxable |
|---|---|---|
| up to $32,000 | up to $25,000 | none |
| $32,000 to $44,000 | $25,000 to $34,000 | up to 50% |
| over $44,000 | over $34,000 | up to 85% |
Source: IRS, Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Married people filing separately who lived with their spouse have a base amount of zero. The thresholds are written into statute and have not changed since the 85% tier was added in 1993.
Because the thresholds are not indexed, a couple with a $60,000 joint benefit crosses the 85% tier with very little other income. The table below applies the IRS worksheet to that benefit at four levels of other income:
| Other income (AGI before benefits plus tax-exempt interest) | Taxable part of a $60,000 joint benefit |
|---|---|
| $20,000 | $11,100 (19%) |
| $40,000 | $28,100 (47%) |
| $60,000 | $45,100 (75%) |
| $100,000 | $51,000 (85%) |
Computed from the formula in Publication 915: up to half of the excess over $32,000, then 85% of the excess over $44,000, capped at 85% of the benefit.
Two things follow for a household with a large IRA. First, once other income is above roughly $60,000, the benefit is taxed at the 85% maximum and stays there; further planning cannot reduce that fraction, only the rate it is taxed at. Second, in the band where the fraction is still rising, each extra dollar of other income drags up to 85 cents of benefit into income with it, so the effective marginal rate in that band is the bracket rate times 1.85. A household in the 22% bracket in that band is really paying about 41% on the next dollar of IRA withdrawal.
The claiming decision
Full retirement age is 67 for anyone born in 1960 or later. Claiming earlier reduces the monthly benefit permanently; claiming later increases it by delayed retirement credits of 8% a year (two-thirds of one percent a month) until age 70, after which there is no further increase. For someone born in 1960, the benefit at 70 is 124% of the full-retirement-age benefit. Benefits also rise each year with the cost-of-living adjustment, 2.8% for 2026, whether or not you have claimed. Sources: Social Security Administration, delayed retirement credits; Social Security Administration, retirement benefits by claiming age for people born in 1960; Social Security Administration, 2026 cost-of-living adjustment fact sheet.
A larger, inflation-adjusted, lifetime income that continues to a surviving spouse; insurance against a long life, which is the risk a large portfolio cannot fully cover; and three more years without benefit income, which are the cheapest years in the whole plan for Roth conversions and gains. For a couple, delaying the higher earner's benefit is usually worth the most, because it becomes the survivor benefit.
Poor health or a family history that makes a long life unlikely; a spouse whose own record is small and who cannot claim a spousal benefit until the higher earner files; or a plan whose early years are already income-heavy for other reasons (a pension, deferred compensation paying out, a business sale), so the bracket room delaying would protect is not there anyway.
Break-even arithmetic on its own. The break-even age for delaying from 67 to 70 is typically in the early 80s, which is near the median life expectancy for someone who has reached 67; for a household with the assets to wait, the decision is about the tax on the years in between and the survivor's income, not about winning a bet on longevity.
The window
A household that retires at 65 and claims at 70 has five years with no wages and no Social Security. Its taxable income in those years is whatever it chooses to make it. That is the window every other article in this series keeps pointing at.
Delaying Social Security does not by itself save tax. Delaying and using the empty years does. A household that delays to 70 and takes nothing from its IRA in the meantime has bought a larger benefit and wasted the window.
After claiming
The maximum earnings subject to Social Security tax rise to $184,500 in 2026, which matters to a household where one spouse is still working: earnings above it add nothing to the future benefit. Source: Social Security Administration, 2026 cost-of-living adjustment fact sheet. Ordinary brackets: IRS, tax year 2026 inflation adjustments (Rev. Proc. 2025-32).
Flames FP approach
Flames Financial Planning coordinates investments, taxes, retirement income and estate guidance under a flat quarterly membership, with no fee on assets. Planning includes proactive tax guidance and a planning-focused review of a completed personal return. Premier adds ongoing tax projections, Roth-conversion and capital-gain modeling, retirement-income and withdrawal implementation, and eligible tax-return preparation and filing through an independent tax partner.
$150 per quarter
$600 annualized
$900 per quarter
$3,600 annualized
$1,650 per quarter
$6,600 annualized
Memberships are billed quarterly in advance with no annual commitment. See what each includes on the pricing page, read how the pieces fit together on the retirement tax planning overview, or, if you are weighing a subscription firm, see the side-by-side with Facet.
FAQ
Up to 85%, depending on "combined income": your adjusted gross income plus tax-exempt interest plus half of your benefits. Nothing is taxable below $32,000 of combined income on a joint return ($25,000 single); up to half is taxable between that and $44,000 ($34,000 single); up to 85% above. Most households with significant retirement savings are at the maximum.
A conversion made before you claim affects nothing, because there is no benefit yet to tax. A conversion made after you claim counts as other income and can pull more of the benefit into income, up to the 85% maximum. That is one of the main reasons the years before claiming are the preferred window for conversions.
About 8% a year in delayed retirement credits after full retirement age, stopping at 70. For someone born in 1960 or later, whose full retirement age is 67, the benefit at 70 is 124% of the full-retirement-age amount, plus annual cost-of-living adjustments either way.
Usually the higher earner, because that benefit continues to the surviving spouse and the lower earner's benefit stops at the first death. Many couples have the lower earner claim earlier for income while the higher earner delays to 70.
Partly. Benefits are fully subtractable below an income threshold and the subtraction phases out above it, so higher-income Minnesota retirees pay state tax on some of their benefit. Most other states served, including Illinois, Wisconsin, Iowa, Pennsylvania, Ohio and Michigan, do not tax Social Security at all.
Yes. Filing Form W-4V with the Social Security Administration sets federal withholding on the benefit, which for many retirees replaces quarterly estimated payments.
Keep reading
Using the years before claiming, slice by slice.
How the claiming age and the withdrawal order are one decision.
Social Security timing decided alongside conversions, Medicare and required distributions.
This article is educational and is not individualized tax, legal or investment advice. Thresholds, rates and premiums are revised every year; the figures here are for tax year 2026 as published by the sources above, and you should confirm the current year’s before acting on any of them. Advisory services are offered through Core Planning, LLC, a Registered Investment Advisor.
