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☕ DrinkCoffeeAndProfit
Smart money moves before breakfast
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Inspiration Quote for the Day
“The hardest thing in the world to understand is the income tax.”
Albert Einstein
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The Morning Ritual
Aunt Roz Gets a Raise at 8:30. The Tax Line Never Got One.
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“So how much is my raise this year?” My aunt Roz asked me that on the phone last night. The TV news was murmuring behind her. She is 71, a retired school secretary, and she reads her Social Security letter with a pencil in hand.
Here is what caught my eye. Her raise gets set this morning. But part of it can come back out at tax time, through a rule Congress wrote decades ago and never updated.
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Roz trusts the number on her statement. Our partner below asks how much of that trust is written into law.
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· · · Partner Message · · ·
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In One Sip
► The Labor Department releases September inflation data at `8:30` a.m. Eastern today. Social Security sets the 2027 raise from it. Source: BLS.
► Forecasts put the 2027 raise near `3.5%`, up from `2.8%` this year. Source: The Senior Citizens League.
► Up to `50%` of benefits become taxable once “combined income” passes `$25,000` for singles or `$32,000` for couples. Source: SSA.
► Up to `85%` becomes taxable above `$34,000` for singles and `$44,000` for couples. Source: SSA.
► The buried part: those dollar lines were set in 1983 and 1993. They have never been adjusted for inflation since.
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Why It Matters for Your Money
Combined income is your other income plus half of your Social Security. Roz gets `$2,000` a month from Social Security and `$30,000` a year from her pension.
That puts her combined income at `$42,000`, well past both lines. About `$11,300` of her benefits counts as taxable income.
A `3.5%` raise adds about `$840` a year. Roughly `$357` of it becomes taxable too. In her `12%` bracket, she keeps most of the raise.
The real surprise comes when she pulls money from her IRA. Each extra `$1,000` she withdraws drags another `$850` of Social Security into taxable income. That is `$222` of tax on a `$1,000` withdrawal, an effective `22%` rate inside a `12%` bracket.
Sound familiar? Planners call this the tax torpedo. It hits middle-income retirees hardest.
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Washington taxes retirees through old rules. Our partner below looks at a different pressure point: the power grid behind AI.
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· · · Partner Message · · ·
Dear Friend,
Why would the world’s richest man buy a dead power plant?
A few months ago, with no press release, xAI bought the site of a shuttered Duke Energy plant in Southaven, Mississippi.
It made no headlines. But it tells you everything.
Musk’s supercomputer runs on temporary turbines that a federal permit shuts off on January 2.
He can’t wait the 3-to-5 years a normal power build takes.
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Now.
A small, publicly traded supplier fits exactly, still priced like nobody noticed the purchase.
“The Buck Stops Here,”
Kelly Maguire
Behind the Markets
LEGAL DISCLAIMER: Personal results may vary. All investing involves risk of loss. Past performance is not a guarantee of future results. The information provided is for educational purposes only and does not constitute a recommendation to buy or sell any specific security.
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The Wealth Angle
Here is where it gets interesting. Every Social Security raise nudges more retirees past those same old lines.
Prices have roughly tripled since 1984. The lines have not moved a dollar. A threshold meant for comfortable retirees now catches school secretaries.
There is relief for now. Through 2028, people 65 and older can take an extra `$6,000` deduction. It lowers the tax bill. It does not change the combined-income math, and it is scheduled to end after 2028.
Think about that for a second. The raise that keeps up with prices is measured with an inflation index. The tax line it runs into is not.
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· · · Partner Message · · ·
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☕ Key Insight:
Social Security tax lines of `$25,000` and `$34,000` have never been indexed. In the torpedo zone, each extra `$1,000` from an IRA can create `$1,850` of taxable income.
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Coffee Break Move
Before your second cup, find last year’s tax return and your Social Security statement.
If you are comfortable: before taking any extra IRA money this year, ask your preparer one question. What is my real tax rate on the next `$1,000`, counting Social Security?
If money is tight: check whether your combined income sits near `$25,000` or `$34,000`. A small change in when you withdraw can keep you below a line.
Roz wrote two numbers on the back of her Social Security letter: her raise, and the `$222`. She plans to call her preparer before December.
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