The AI Bull Market Has Gained 117% in Four Years. His $200,000 Stock Profit Won’t Cut Social Security but Could Make 85% of His Benefits Taxable

Cashing out a six-figure stock gain in retirement triggers two separate government mechanisms, and the one most retirees worry about turns out to be the wrong one to fear.

The Full Benefits Desk desk. Editor: Gerelyn Terzo.

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The bull market that began with the S&P 500’s closing low on October 12, 2022 just turned four. Over that stretch the index has gained 117%, which Reuters ranks as the sixth-best-performing bull market since World War Two. Spending on artificial intelligence has done most of the work.

Picture a 64-year-old single retired person who rode that rally in a taxable brokerage account. He already receives $2,000 a month in benefits and draws $20,000 a year from his IRA. This fall he sells and locks in $200,000 of long-term stock gains.

Will cashing in shrink his Social Security checks or raise his tax bill? Those are two different questions, and the same stock sale can leave his checks untouched while making more of them taxable.

He claimed before full retirement age (FRA), which is 67 for anyone born in 1960 or later, so the retirement earnings test applies to him. In 2026, Social Security holds back $1 for every $2 earned above $24,480.

The earnings test counts wages and net self-employment earnings. Investment gains, pensions and IRA withdrawals stay outside it. His $200,000 gain causes zero withholding, and every monthly check keeps arriving on time. Had he earned that same amount as a consultant, heavy withholding would have kicked in.

Taxes on benefits depend on combined income, also called provisional income. That generally means adjusted gross income before Social Security, plus tax-exempt interest and half your benefits. For a single taxpayer, once that total passes $25,000, part of your benefit becomes taxable. Above $34,000, up to 85% can be taxed.

Without the sale, his combined income is half of his $24,000 in benefits plus the $20,000 from his IRA, or $32,000. Only $3,500 of his benefits counts as taxable income.

With the sale, combined income jumps to $232,000. The formula hits its ceiling, and $20,400 of his benefits becomes taxable. That’s $16,900 of extra taxable income created by the stock sale.

Two details keep this in proportion

Because the benefit tax tops out at 85%, a single large sale can only max it out for that one year. Next year his combined income drops back near $32,000, and his taxable benefits fall with it. Spreading the same gain across several years can sometimes push benefits to the 85% ceiling in each of those years. Bundling a gain into one year can actually hold down this particular cost.

Medicare is the other piece. Higher-income participants pay an added premium surcharge, and Medicare sets it using your tax return from two years earlier. A big gain at 64 can raise his premiums at 66, right after he signs up. A one-time stock gain alone does not qualify him for relief from the surcharge. He would need another qualifying reason, such as retirement or divorce that lowers his income, for Social Security to use more recent income (we covered this surcharge and eight other IRS rules that quietly drain retirement accounts in a free guide here).

Before selling, check what you paid for each batch of shares. Selling the ones with a higher purchase price can raise the same cash while locking in a smaller gain. That leaves less income to feed into the Social Security tax calculation.

Next, add up the gains you’ve already realized this year and run a quick projection of how much your benefit would become taxable. For ordinary stock sales, the trade date determines the tax year. A sale made in December belongs on this year’s return even if it settles in January.

Your state taxes, filing status, and other income can shift these numbers, so run them against your own situation before you sell.

Contact [email protected] for any questions or corrections.

Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.

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