How a Guaranteed Annuity Impacts Social Security Taxation for Retirees

Jul 7

For many retirees, Social Security benefits form a crucial part of their income. However, how much of that income remains tax-free depends on something called provisional income—a calculation the IRS uses to determine how much, if any, of your Social Security benefits are taxable.

Let’s look at a common example:

Scenario:

A married couple, both aged 72, has the following income:

Wife: $1,500/month in Social Security → $18,000/year
Husband: $800/month in Social Security → $9,600/year
Combined Social Security benefits: $27,600/year
Guaranteed annuity income: $20,000/year
No other income sources

What Is Provisional Income?

Provisional income includes:

50% of Social Security benefits
All other taxable income (including annuities)
Tax-exempt interest, if any

In this case:

50% of SSA benefits = $13,800
Annuity income = $20,000
Total provisional income = $33,800

How the IRS Taxes Social Security Benefits

For married couples filing jointly:

If provisional income is between $32,000 and $44,000, up to 50% of SSA benefits may be taxable
If it’s above $44,000, up to 85% may be taxable

Since this couple has $33,800 in provisional income, up to 50% of their benefits could be subject to federal income tax.

Why It Matters

Many retirees plan for steady income sources like annuities, thinking they’ll supplement Social Security without tax impact. But as this example shows, even modest annuity income can make part of your Social Security taxable.

Planning Ahead

Tax-efficient retirement planning is crucial. Working with a financial professional or Social Security advisor can help you:

Evaluate the impact of annuities or pensions
Explore Roth conversions or other strategies
Lower taxable income while preserving lifestyle

Need help understanding your Social Security income and how to minimize tax surprises?
📞 Schedule a free consultation today and gain clarity for a more secure retirement.

Lucia Halili