Many retirees are surprised to find out that their Social Security benefits may be subject to income tax. Approximately 48% of Social Security recipients were paying federal income taxes on their benefits in 2022, a number expected to rise to around 56% by 2050.

Rule changes signed into law by Presidents Reagan and Clinton mean that up to 85% of Social Security benefits can be taxed based on “combined income.” This calculation involves adding half of your annual benefits to your adjusted gross income, potentially resulting in higher taxes on benefits.

Strategies to minimize taxes on Social Security benefits include reducing or delaying retirement withdrawals, managing required minimum distributions (RMDs), and considering a Roth conversion. Be aware of the “tax torpedo” effect, which can push retirees into higher tax brackets when combining benefit income with other sources.

Understanding how RMDs work and their impact on tax liability is crucial for retirement planning. Financial advisors can help structure income plans to minimize taxes. A free tool from SmartAsset matches individuals with vetted advisors who can assist in achieving financial goals.

In case of unexpected expenses, maintain a liquid emergency fund in a high-interest account. This fund should be easily accessible and not subject to market fluctuations, providing a cushion against unforeseen financial challenges. Comparing savings accounts from different banks can help maximize savings growth.

Read more at Yahoo Finance: How Can I Lower Taxes on My $2,800 Monthly Social Security Check?