Benefit Choice

• If you are age 62 or over, you have a choice of taking an early Social Security retirement benefit in a reduced amount, or relying on your IRA distributions and waiting until you reach your full retirement age to take your Social Security benefit. For those born between 1943 and 1954, full retirement age is 66. If you wait to take your Social Security until you are age 66, your benefits will be 25 percent higher than if you started taking them at age 62. If you keep working after retirement age, your benefit will increase by 8 percent for each year you delay taking benefits, up to 32 percent higher at age 70 than you would have received at age 66.
  
  

Tax Considerations

• Both Social Security payments and IRA retirement distributions are taxable, but the federal tax bite on Social Security depends on how much other income you receive. For instance, if you receive a combined income of less than $25,000 if single or $32,000 if married filing jointly, your Social Security benefit isn’t taxed. If income is between $25,000 and $34,000 for singles and between $32,000 and $44,000 if married filing jointly, then half your Social Security benefit is taxable. If combined income exceeds $34,000 for singles or $44,000 if married filing jointly, then 85 percent of Social Security is taxable. However, 100 percent of IRA distributions are taxable at all income levels.
  
  

Income Proportion

• Combined income is calculated as 50 percent of your Social Security benefit plus all other income. When you add IRA distributions to your Social Security benefit, your total combined income can rise to levels where Social Security is taxable. If you can live off your IRA distributions early in your retirement and wait until you are age 70 to start taking Social Security, your monthly benefit will be 57 percent higher than if you took Social Security at age 62. This may allow you to reduce the proportion of your retirement income that comes from your IRA, and thereby reduce your income taxes. Additionally, your higher Social Security benefit means a larger widow’s benefit for your spouse after you die.
  
  

No Benefit Cuts

• One thing you won’t have to worry about is whether or not income from IRA withdrawals will reduce your Social Security payout. The Social Security Administration says the limits on earned income are only determined by wages you received from an employer or net profit you made from self-employment. Unearned retirement income you collect from nonwork sources such as IRAs, pensions and annuities doesn’t count against your Social Security benefits.