Investing

My Six Figure Social Security Mistake Ended Up Substantially Cutting Our Benefits

Austin Smith

Published: January 22, 2025 1:26 pm

24/7 Wall St. Key Points:

• Significant capital gains, such those from selling a house, can momentarily raise Social Security and Medicare deductions and reduce your benefits for a single year.
• Social Security payouts are not affected by passive income from sources including bonds, CDs, and dividends, which emphasizes its value in retirement preparation.
• Ideally starting in your late 40s or early 50s, building a dividend-paying portfolio moves from high-growth investments to steady, income-generating blue-chip businesses.
• Even six figure mistakes don’t mean missing retirement. See if you’re ahead, or behind on your retirement plans in as little as 3 minutes. Click here to take a brief quiz and learn more.

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Transcript:

[00:00:04] Douglas McIntyre: So Lee, something people don’t understand when they take, social security is that there are different kinds of income that can be charged against that.

[00:00:15] Douglas McIntyre: And you told me recently about your situation. So can you explain that to us?

[00:00:22] Lee Jackson: Sure. And quickly for our viewers, remember, once you are taking social security and of your passive income, and that’s income from stocks or bonds or CDs or money market, that’s fine. You can earn a zillion dollars and that won’t affect your distribution. Now, what will affect it is A, if you have job income that’s higher than a certain level, and that, that always depends on your age and when you took it, or B, if you have.

[00:00:51] Lee Jackson: Big capital gains, which is what happened to me a few years ago. I had a place in Hawaii for over 20 years. I had three of them and I kept selling one and moving up and then selling and moving up again. Well, when we finally sold the last one, like three years ago, there was a tremendous profit. Let’s just call it a Big six figure profit and I was like, hey, that’s great.

[00:01:15] Lee Jackson: And I ended up paying I ended up paying six figures in income tax to the government But what I didn’t realize is that huge capital gain went on my regular tax form and When, when that, so I filed it, you know, like in April. And so when that year ended and the next year started, I saw that my deductions on social security had all been raised, all of them.

[00:01:43] Lee Jackson: And my, my payment got cut from about 2, 200 to like 1, 650. And when I called the social security office, they were like, well, you know, you had a huge gain. And I said, that was a one time only gain. Doesn’t matter if that happens, they will what they do is there’s there is on on social security part a that’s paid for part B. You know, there’s a small deduction part C or prescription. There’s a deduction and on Medicare Advantage, which is usually a party. There’s a deduction for that. Well, fortunately. This year, all of those deductions came back down because I didn’t sell an expensive house. So for our viewers, remember, if you’re thinking of downsizing and you’ve been in your home for 20 or 30 years and you have huge, massive capital gains, they’re going to hit you on the deduction side.

[00:02:35] Douglas McIntyre: But it’s a year. No, this wasn’t just so people know this was not something that just kept carrying over infinitely.

[00:02:42] Lee Jackson: No, no, I mean, they just applied that huge capital gain one year, you know, there was a whole year where I got, you know, substantially, you know, less payout and my payouts lower anyway, because I did, I took Social Security when I was 62, because I was running for 24 7, but I could, I could cap that amount of income so I didn’t get penalized. So, You know, if you’re, if you’re going to, especially for folks that are, you know, moving out of the Midwest and want to go to the South and get out of the cold and things of that nature, be very careful when you sell your home, because if you’re getting Social Security, they’ll hit you

[00:03:19] Douglas McIntyre: Now, how does passive income work? There’s another side to this. What is, how is passive income treated?

[00:03:27] Lee Jackson: Passive income again, which is stocks, bonds, CDs if you got an annuity that pays anything like that is passive income that is not counted against your your social security distribution regardless of what age you take it at that is not counted But what is counted is capital gains, so you got to keep a close eye on those But that’s where passive income is important that start generating a portfolio that can generate it because no matter even if you wait till the very end to take your social security ain’t going to be enough to live on

[00:04:03] Douglas McIntyre: No. So I know that there’s no exact answer to this, but if you, if you want to tee yourself up for passive income, when would you start to look at that? When you were 18 or when you’re 50? For our viewers, what’s, is there a balance there? You just say, no, you know,

[00:04:22] Lee Jackson: Well,

[00:04:23] Douglas McIntyre: do an ad hoc.

[00:04:23] Lee Jackson: question. I mean, when you’re in your thirties and your forties, I mean, you’re not worried about building up a dividend passive income portfolio, but as you start to get into your late forties and early fifties. Then it’s time to start shifting some of that risk away from red hot AI stocks or something of that nature to you can still for a growth and income perspective, but we write about this constantly on 24 7 to buy quality blue chip stocks That pay dividends because they’re the chances of them ever going out of business are very slim and you could start piling up that that income in your 401k or in your self directed ira or in your roth And then you’ll be good to go.