Dear Liz: Is it true that when you start your required minimum distributions from 401(k) and 403(b) plans, you give up your monthly Social Security payment? I plan to start RMDs next year at age 71 thinking I will get less money for more years.
Answer: Your withdrawals from retirement plans won’t reduce your Social Security directly. The additional income could, however, make more of your Social Security payment taxable.
Taxes on Social Security are based on something called “combined income,” which is your adjusted gross income plus any nontaxable interest you earned plus half of your Social Security income. If you’re single and your combined income is between $25,000 and $34,000, then up to half of your Social Security payment may be taxable. If combined income is over $34,000, up to 85% may be taxable. For people who are married filing jointly, the bracket for up to 50% taxation is $32,000 and $44,000 while combined income over $44,000 can trigger up to 85% taxation.
To be clear, this does not mean that 50% or more of your benefit goes to taxes. It means that 50% or more of your benefit may be subject to your income tax bracket.
Receiving RMDs will also increase your income for calculating Medicare Parts B and D premiums. Monthly Medicare premiums range from zero to $443.90 for Part B, and from zero to $85.80 for Part D.
A spike in income caused by RMDs may trigger a signficant rise in these premiums which reduces the net Social Security payments.
Medicare.gov has a wealth of information about income-based premiums.
You can read more about that here: https://asklizweston.com/qa-how-capital-gains-boost-medicare-premiums/