Social Security benefits can make retirement far more affordable, especially if your retirement savings are falling short. The average retiree collects over $1,600 per month in benefits, according to the Social Security Administration, which can go a long way in retirement.
However, there’s one sneaky expense that could take a bite out of your benefits. And if you’re not prepared for it, it could throw off your budget in retirement.
How taxes affect your Social Security
Unfortunately, even in retirement, you may not be able to get away from taxes. Your Social Security benefits may be subject to both state and federal income taxes, and it’s wise to prepare for them now so they don’t take you by surprise down the road.
State taxes will depend on where you live, as each state has different regulations as to whether benefits are taxed.
The good news is that 38 states do not tax Social Security at all. The 12 that do include Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, Utah, Vermont, and West Virginia. (North Dakota formerly taxed benefits as well, but as of 2021 has excluded Social Security from taxation.)