The most common question people bring into retirement planning conversations about Social Security is when to file. There are break-even calculators, delayed-credit tables, and no shortage of opinions about whether 62 or 67 or 70 is the right answer. In practice, the filing date turns out to be a secondary concern. The tax picture around your Social Security income is where the planning decisions that shape retirement outcomes tend to live.

Social Security benefits are not taxed the way wages or IRA withdrawals are. The IRS uses a formula called provisional income to determine how much of your benefit becomes taxable. The formula adds up half of your Social Security benefit plus all of your other income, including pension, IRA withdrawals, capital gains, dividends, and notably, even interest from municipal bonds that would otherwise be tax-free. Based on where that combined figure lands relative to a set of income thresholds, anywhere from zero to 85% of your Social Security benefit flows into taxable income. Those thresholds were set in the mid-1980s and have never been adjusted for inflation, which means they're low enough that most retirees hit the 85% mark without realizing they were approaching it.

The interaction between IRA withdrawals and Social Security taxation is where things get consequential, and it's something Brian Carlson illustrates with what he calls the tax torpedo. If a retiree is already positioned right at the edge of the 85% threshold, an additional dollar pulled from a 401(k) or IRA doesn't just add one dollar to taxable income. It also drags another 85 cents of Social Security benefit into the taxable column alongside it. That one dollar of withdrawal becomes a dollar and 85 cents of taxable income. At a combined federal and state rate of around 30%, the effective tax rate on that withdrawal reaches 55%. That number changes how people think about casually pulling a little extra from their retirement accounts.

The Greg and Beth example puts a dollar figure on what income coordination can produce. Greg and Beth are both 65, debt-free, with roughly a million dollars in retirement savings and a goal of $95,000 per year in income. Two filing strategies get them there. In the first, they turn on one Social Security benefit and draw more from their IRA. In the second, they turn on both benefits and draw less from the IRA. The income landing in their bank account is identical either way, but the federal tax bills are not. The first scenario produces a $4,664 bill. The second produces $423. Add Minnesota state tax and the difference comes to roughly $6,000 a year, or about $500 a month. The only thing that changed was the mix of where the income came from.

A retirement income strategy built on deliberate income coordination can create results like that systematically across the full span of retirement. The years after retirement begins, particularly before Social Security and pension income are fully turned on, can be an opportunity to keep provisional income low and execute Roth conversions at lower rates. Building a taxable brokerage account alongside a 401(k) during the accumulation phase gives more levers to pull once retirement begins. The planning goal, as Brian frames it, is to coordinate income sources deliberately across retirement so that as few dollars as possible end up being taxed unnecessarily. Picking a precise filing date is a much smaller piece of that picture.

If you're within ten years of retirement and haven't mapped out what your tax picture looks like across that period, Summit offers a complimentary introductory conversation for people who want to think through it with an advisor. The full episode is on YouTube and covers the complete framework along with the case study numbers in detail.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.