How do annuities affect Social Security benefits?

Annuity payments generally won’t affect your Social Security retirement or Social Security Disability Insurance (SSDI) benefits. Still, they can increase your taxable income, affect eligibility for means-tested Supplemental Security Income (SSI), and raise Medicare premiums under the Income-Related Monthly Adjustment Amount (IRMAA). 

Understanding the way annuities and government programs interact can help you make better decisions for your retirement income. Read on to learn more about how annuities can impact Social Security benefits.

Does an annuity count as income for Social Security?

Annuity distributions can count as income for Social Security purposes, but it depends on the type of distribution you’re working with.

When annuity payments include earnings or growth, the IRS treats them as ordinary, taxable income. This taxable amount increases your adjusted gross income (AGI), which the Social Security Administration (SSA) and the IRS use in the “combined income” calculation to determine whether your Social Security benefits are taxable. 

Distributions that are simply a return of your original principal — or original capital — don’t qualify as earned income for Social Security benefit calculations. Only the growth or interest portion adds to AGI. It is important to remember for pre-tax funded or qualified annuities the entire payment amount is typically ordinary income.

Do annuity payments affect Social Security?

Annuity payments won’t change your monthly Social Security check, but they can indirectly influence your benefits in the following ways.

Retirement benefits

Most annuity distributions don’t directly reduce your Social Security retirement benefits. The SSA calculates your primary benefit based on your lifetime earnings and age at the time you claim, not on outside income like annuities. Outside income, including annuities, isn’t a part of this formula.

Whether you take your annuity as monthly payments or a lump sum, it doesn’t change the amount of your Social Security check. The SSA treats annuity income separately, so you can receive annuity payments and Social Security benefits without one reducing the other.

Taxation of benefits

Annuity payments can increase your taxable income even though they don’t alter benefit amounts. When distributions include earnings or growth, they’re taxed as ordinary income, which increases your AGI. Similarly, the entire payment from qualified annuities increase your AGI. 

The IRS uses your AGI plus half of your Social Security benefits to calculate combined income, which determines whether your benefits are subject to federal taxes. For single filers, combined income between $25,000 and $34,000 can make up to 50% of benefits taxable — and above $34,000, up to 85% may be taxable. Joint filers can face slightly higher thresholds.

Since annuity income can add to AGI, it can push part of your Social Security benefits into the taxable range.

Means-tested programs and premiums

Means-tested programs, such as SSI or Medicaid, provide benefits or financial assistance based on your income and asset limits. Taxable annuity distributions can increase your income above those limits and may reduce or eliminate eligibility for these programs.

Medicare premiums also depend on income. IRMAA raises Medicare Part B and D premiums for individuals with higher income — including taxable income from annuities. So even though annuities don’t change your Social Security payments, taking taxable distributions can increase healthcare costs and affect access to other income-based support programs.

Is Social Security considered an annuity?

Social Security isn’t the same as an annuity, but there is some overlap. Claiming Social Security provides guaranteed monthly income for life, just like the payouts you’d receive from an immediate annuity. 

The difference is that Social Security isn’t a product you can purchase or customize. Instead, workers and employers fund the system through payroll taxes. The SSA calculates your benefits based on your lifetime earnings and when you claim.

So while Social Security is annuity-like, it’s still a government-run social insurance program rather than a retirement plan you sign up for.

Does an annuity affect Social Security disability?

Unearned income is money you receive without actively working for it, such as interest, dividends, and annuity payments. Annuities count as unearned income because they come from your invested principal and earnings, not from current employment. 

SSDI benefits don’t decrease due to unearned income, since eligibility and benefit amounts depend on your past work credits and earnings history. This doesn’t include income from annuities or other passive sources. 

Because the SSA classifies annuity payments as unearned income, they don’t count toward the SSDI “substantial gainful activity” limit. This measures the level of work activity and earnings that could make someone ineligible for disability benefits. 

You can receive both SSDI and annuity payments without one affecting the other. The only time income matters for SSDI is when it comes from actual work, not passive or investment sources like annuities. Keep in mind, you still have to report all income sources — including annuities — to the SSA to avoid overpayments.

Here’s what Gainbridge annuities can do for you

Fixed annuities can be a powerful way to build steady, predictable retirement income — especially if you want security you can’t always get from market-based investments. At Gainbridge, we offer a 30-day, free look period to make sure our annuity fits your financial needs. If you change your mind within that timeframe, we can cancel your annuity with no penalty. 

Explore Gainbridge today. It’s never been easier to take control of your retirement savings and find an annuity that works for you.

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This article is for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. For advice concerning your own situation please contact the appropriate professional. The Gainbridge® digital platform provides informational and educational resources intended only for self-directed purposes. Guarantees are backed by the financial strength and claims-paying ability of the issuer.

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