Social Security is a critical program in the United States

Mike Sylvester • May 27, 2024

This post will talk about who relies on Social Security, how your benefits are calculated, how much income the program is designed to replace, and the financial condition of social security.

It saddens me that Congress cannot act like adults and make bipartisan changes to this important program. I am pretty sure they will come together 3-6 months before the program cannot pay full benefits and do something very similar to what was done in

1983 and it will again be very unpopular.

Who relies on Social Security in retirement?

The most recent data I have seen is from the Social Security Administration (SSA) itself. It was published in 2021 based on 2015 data. Per the SSA using 2015 data:

Social Security Benefits represent about 30% of the income for people over age 65. Note this means the program is working as expected since a lot of people are working after 65 due to increases in life expectancy.

51.8% of those aged 65 or older rely on Social Security for half or more of their income.

24.7% of those aged 65 or older rely on Social Security (SS) for 90% or more of their income. This is a very serious problem.

The percentage of reliance on Social Security by IRS income quintile is terrifying. The 1st quintile is the lowest income 20% of income tax returns filed.

For the 1st quintile, 86.6% rely on SS for half or more of income and 64.1% rely on it for 90% or more of income.

For the 2nd quintile, 82.3% rely on SS for half or more of income and 47.8% rely on it for 90% or more of income.

For the 3rd quintile, 62.7% rely on SS for half or more of income and 13.8% rely on it for 90% or more of income.

For the 4th quintile, 24.8% rely on SS for half or more of income and 1% rely on it for 90% or more of income.

For the 5th quintile, 2.2% rely on SS for half or more of income and none rely on it for 90% or more of income.

There is zero chance Congress can allow Social Security benefits to be cut unless it is only for the very wealthy and I do not think they should even do that. Instead, taxes and the retirement age will be raised and this will likely happen in 2035 because Congress never plans and waits until we are in crisis to fix anything like this. Their fix will be wildly unpopular. Note if fixed today the results would be less draconian…

How are Social Security benefits calculated?

It saddens me how few people understand this. This should be emphasized in K-12, in college, by employers, and by the government itself.

I am very angry the Social Security Administration largely stopped mailing statements in 2011. I really think this was criminal. Everyone should know what their expected social security benefits are and I think annual statements should be mailed. Further the statements should emphasize the long-term fiscal insolvency of the program. Please go and setup an online account and check it every year on your birthday.

First off, the social security benefit formula is progressive, meaning those who make less have a much higher percentage of their income replaced in the form of benefits. The Social Security program was designed to benefit lower income individuals and it does that. Further in 1983 up to 85% of social security income became taxable to the Federal government depending on other income and this makes the program even more progressive. Note I have clients who complain about this every year and the law was passed 41 years ago.

You qualify for Social Security benefits if you accumulate enough credits. The amount needed for a credit in 2024 is $1,730. You can earn up to a maximum of 4 credits per year. The amount needed to earn 1 credit automatically increases each year when average wages increase.

Your benefits are calculated based on your average indexed monthly earnings (AIME), your primary insurance amount (PIA), and the age at which you choose to receive benefits.

Your AIME is a calculation based on your 35 best years of income subject to social security tax. The SSA indexes your income subject to social security tax and adjusted each year for inflation. You get credit for your best 35 years indexed to inflation. Any additional years of income are lost and not included in the calculation. If you do not have 35 years of income then zeros are averaged in. AIME is your average MONTHLY earnings subject to social security tax, indexed for inflation, over your best 35 years of earned and best is best in inflation adjusted terms.

Note this calculation covers your entire life. It is very difficult to change these numbers.

Those of you who own Subchapter S Corporations may well have less in benefits at retirement depending on how much you are paid in wages each year. That is OK as long as you invest the savings due to being an S Corporation.

If you are retiring this year, and your average annual income subject to social security tax is $72,000 in 2024 dollars your AIME is $6,000.

The next part of the calculation is what benefits low-income earners and makes the program progressive. Note with the demise of defined benefit retirement plans the program needs to be progressive.

Next your Primary Insurance Amount (PIA) is calculated and the formula changes every year due to inflation.

For 2024, your PIA will be the total of: 90% of the first $1,174 of your AIME Plus, 32% of any amount over $1,174 up to $7,078, Plus15% of any amount over $7,078. This is rounded to the nearest dollar.

If you retire in 2024 and your AIME is $6,000, your PIA is: 1056.5 + 1,544.32 = $2,601. So, you are paid $2,601 if you retire at full retirement age minus what you pay for Medicare premiums.

For planning purposes in 2024 you clearly want an AIME of at least $1,174 since you get 90% of this amount in the PIA calculation. Next you might want to have an AIME of $7,078 because above $7,078 you only get 15%.

You should go online, setup a social security account and look at your lifetime earnings. Make sure they are correct. Far easier to fix now rather than later.

Remember income subject to social security tax is not all income. Interest, dividends, S corporate profits, etc. is NOT subject to social security tax and does not count in this calculation.

Your PIA is the benefit you will receive if you are at full retirement age. If you start drawing benefits early you will get less and if you wait until age 70 you will get more. This is something you need to consider carefully and it is more complicated if you are married. Please analyze this carefully when you start drawing benefits. It is extremely important. Too many people draw benefits too early.

Social Security has great calculators online and you really should setup a social security account today.

How much income is Social Security designed to replace?

Social Security was passed into law in 1935. The program was designed to replace 1/3 of a worker’s income in retirement. The life expectancy in the United States in 1935 was 62. Today it is 79. This is the primary reason the Social Security program is in financial trouble. Life expectancy has increased by 17 years!

The original Social Security documents talk about a three-legged stool where 1/3 comes from SS, 1/3 from employer defined benefit plans, and 1/3 from savings.

Defined benefit plans are no longer common. The government did a terrible job ensuring companies properly funded them. Further, private businesses realized they were expensive and switched to plans where employees contribute. This shifted a significant amount of retirement planning onto individuals.

Note I do a lot of tax returns for retirees with defined benefit pension plans. Each year fewer and fewer people will receive retirement benefits from defined benefit plans.

The last major changes to Social Security were made in 1983 and were very bipartisan. Further they were very unpopular. Social Security could not have paid full benefits in late 1983 and changes were made that will extend the program solvency to about 2035.

The Social Security funding formula was changed in 1983 and the program was changed to replace 40% of income subject to social security tax rather than 1/3 of total income. Note, actuarily the program is designed to replace as much as 55% of income for the working poor and 20-25% for those who earn close to the annual Social Security wage cap. Note the program replaces far less than 20% for very high earners.

Note many financial planners say that you need to replace 80% of your total income in retirement (Not income subject to social security taxes). Social Security is designed to replace 40% of your income that was subject to social security taxes. For people at the lower end of the income spectrum a much higher percentage of their income is subject to social security taxes.

The financial position of Social Security is grim and projected to get a little worse over time. According to the 2024 Social Security Trustees Report with no changes to the program the following benefits will be paid out:

Through 2034 100% of benefits paid

2035 83% of benefits paid

2098 73% of benefits paid

Under current law if changes are not made benefits are cut across the board. This is built into existing law and would take an act of Congress to change.

There are many ways to fix the solvency of Social Security program; however, Congress will not get off their behinds and come up with a bipartisan solution to fix the problem until 2035. Anything Congress does will be deeply unpopular and that is why they will do nothing until the crisis is at hand.

What irritates me is Social Security is a very necessary program and the sooner it is brought into solvency the better. The sooner changes are made the less drastic they need to be. Yet Congress does nothing except both sides bring up extreme ideas and attack each other.

Per this report, the easiest way to fix the solvency of the program for the next 75 years is to increase Social Security payroll taxes from the current 12.4% (Half paid by employer) to 15.8% (Half paid by employer). If this change was made as of 1/1/25 the Social Security program would be solvent and able to pay full benefits through 2098.

This would increase employer payroll costs by 1.7% on all wages up to the Social Security cap. Further it would decrease employee pay by 1.7% on all wages up to the Social Security cap. The self-employed would have to pay 3.4% more since they pay both sides. This will never happen because members of Congress have no spine.

Younger Americans are convinced they will not receive Social Security benefits when they retire or at least think they will get less than the promised amount.

Older Americans vote. All members of Congress care about is getting re-elected. There is zero chance Congress is going to allow benefits to be cut. That being said, the changes Congress has to make will be very unpopular.

If I had to guess, and this is a total guess, I think something like the following will happen in 2035, and which major political party is in power will influence this and this guess assumes divided government which is what we generally have.

I think the retirement age to collect Social Security will be increased. Life expectancy is up 17 years from when the program was started. I think early retirement age will be slowly increased to 65 from 62. I think full retirement age will be slowly increased from 67 to 70. Note these changes will be deeply unpopular and the AARP will go berserk. The Democrats will oppose this and the Republicans will insist on it. Note this change would fix 45% of the 75-year funding shortfall. In the end, this is cutting benefits.

Payroll taxes honestly need to be increased. Back in 1983 Social Security taxes were 10.8% (Half employee and half employer) and over the next seven years they were slowly increased to 12.4%. They have been 12.4% since 1990. I might guess they increase them by another 1.6% in total, half employee and half employer. Likely done over an 8-year period. The Chamber of Commerce and NFIB will go berserk. Republicans will oppose this and Democrats will insist on it. Note this change would fix 45% of the 75-year funding shortfall. In the end this is raising taxes.

Note the above two paragraphs are very reasonable compromise.

The other 10% of the funding shortfall would be fixed by a large number of minor changes. Maybe instead of making Social Security income 85% taxable they will just make it taxable 100%. Maybe they will adjust the benefits formula so the annual benefit increases are less. Maybe they will increase the social security wage cap.

If we do not have divided government then the fixes will be more extreme with the Republicans cutting benefits more if they are in power and the Democrats raising taxes more and means testing benefits.

Social Security benefits are vital. Congress has failed entirely to ensure this program is sufficiently funded.

We highly suggest our clients communicate with their CPA before they draw social security benefits.

If you have specific questions about Social Security benefits you can talk to your CPA! Plenty of our clients hire us to help with Social Security planning and I particularly enjoy doing it.

Mike Sylvester, CPA

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SBS Staffing Changes

By Mike Sylvester • September 11, 2025

Nathan Skinner, one of our four Senior Staff Accountants, is moving back home to Dayton, Ohio. Nathan has been with us for four years since he graduated college in 2021. We wish Nathan success in all of his future endeavors, and we will miss him greatly! His entire family is in Dayton, and we think this move will be great for his family. Nathan's last day at SBS will be either September 18 th or 19 th . If you normally work with Nathan, you will get an email from us letting you know who you will be working with moving forward! If you need something before you get the email; please call Nikkie Reyes at 260-407-5000 and she will connect you to the right person! SBS CPA Group is hiring, and we will be posting our job opening on Indeed and on our company blog in the next few days. If you know someone looking for a great job in public accounting in Fort Wayne, Indiana, please reach out to Mike Sylvester at Mike@sbscpagroup.com!

New Gambling Loss Rules

By Mike Sylvester • August 27, 2025

The gambling rules for tax year 2026 have changed due to the new tax bill. One Big Beautiful Bill Act (OBBB), was signed into law on July 4, 2025 by President Trump. These changes will affect both casual gamblers and professionals beginning in the 2026 tax year. Those who gamble should understand the new rules. The Old Rule (Through 2025) Historically, the IRS has allowed taxpayers to deduct gambling losses—but only to the extent of their gambling winnings. If you won $10,000 but lost $15,000, you could deduct $10,000 in losses, effectively zeroing out your taxable gambling income. The New Rule (Starting 2026) Beginning with the 2026 tax year, gambling losses will be deductible at only 90% of the amount of winnings. While this may sound like a minor adjustment, the impact is significant. Example: You win $100,000 and lose $100,000 during the year. Under the old rule: You would report $100,000 of income and deduct $100,000 of losses, resulting in zero taxable gambling income. Under the new rule: You can deduct only $90,000 of those losses on your federal income tax returns. That means you’ll still be taxed on $10,000 of “phantom income,” even though you truly broke even. This rule applies to all gamblers, whether you buy the occasional lottery ticket or operate as a professional gambler. How Itemized Deductions Work It’s important to understand that gambling losses are deductible only if you itemize deductions on your tax return. Here’s what that means: Standard vs. Itemized Deduction Every taxpayer can take the standard deduction—a fixed amount based on filing status. For 2025, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. Alternatively, you can choose to itemize deductions if the total of your eligible deductions (mortgage interest, charitable contributions, state and local taxes, medical expenses, and gambling losses, among others) is higher than the standard deduction. Where Gambling Losses Appear Gambling losses are reported on Schedule A, Itemized Deductions, not directly against gambling winnings. You must report all gambling winnings in full as income. Losses are deducted separately on Schedule A, up to the allowable limit (100% through 2025, 90% starting in 2026). Recordkeeping Requirements To claim these deductions, you must keep meticulous records—receipts, tickets, player’s club statements, and a diary of gambling activity. Without proper documentation, the IRS may disallow your deduction even if you had genuine losses. Why It Matters The IRS projects that this change will raise more than $1 billion in revenue over the next decade, but it comes at the expense of fairness. Many taxpayers will now find themselves paying tax on income they never actually earned. Professional gamblers, in particular, may feel the heaviest impact, as their livelihoods often involve large swings of wins and losses. Additionally, because gambling losses are only deductible for those who itemize, some taxpayers may find that the standard deduction provides a bigger benefit—even if it means their gambling losses go unused. This makes strategic planning even more important. Planning Ahead For 2025, the old rules remain in effect. If gambling is part of your financial life, I strongly recommend: Evaluating whether itemizing makes sense in your situation. Keeping meticulous records of all winnings and losses. Budgeting for higher tax liability in 2026 and beyond, even if you expect to break even. Consulting with a tax professional to explore potential strategies for minimizing the impact. At SBS CPA Group, we’re here to help clients navigate these changes with confidence. If you’d like to review your individual situation and discuss strategies for 2025 and beyond, please reach out to your CPA and we’d be glad to assist. Mike Sylvester, CPA

Energy Tax Credits

By Mike Sylvester • August 27, 2025

Valuable tax credits are expiring at the end of this year. Our clients have claimed hundreds of thousands of dollars of federal energy tax credits the last few years! The One Big Beautiful Bill that passed in July changed the expiration date for the Residential Clean Energy Credit and the Energy Efficient Home Improvement Credit to December 31, 2025. Originally designed to expire in 2032, these credits can lead to substantial tax savings. To meet the Residential Clean Energy Credit requirements, you must install one of the following items in your main home or second home. The home can be new or existing. Homes you rent out do not qualify, but renters who improve the property do qualify. The credit is 30% of the expenditure, including labor. The item must be brand new; used items do not count. -Geothermal Heat Pumps -Wind Turbines -Solar Electric Panels -Solar Water Heaters -Fuel Cells (credit limited by the amount of kilowatt hours and only for main homes) -Battery Storage Systems (with equal to or greater than three kilowatt hours) You can claim all of these in the same year if you qualify for them. There are no limits on the amount of credit you can claim, except for Fuel Cells as noted above. To qualify under the Energy Efficient Home Improvement Credit rules, you would need to install one or more of the following items in a house that you live in that already exists. New homes do not qualify and neither do rental houses. The amount of the credit is 30% of the expense, with maximum limits listed below: -Exterior Doors (up to $250 per door, $500 total; must be main home; cannot include labor costs; for homeowners only-not renters) -Certified Home Energy Audit (up to $150; must be main home; for homeowners only-not renters) -Exterior Windows and Skylights (up to $600; must be main home; cannot include labor costs; for homeowners only-not renters) -Insulation and Air Sealing Materials (up to $1,200; must be main home; cannot include labor costs; for homeowners only-not renters) -Central Air Conditioners (up to $600; can be main or second home; you can include labor costs; homeowners or renters can claim) -Natural Gas, Propane, or Oil Water Heaters (up to $600; can be main or second home; you can include labor costs; homeowners or renters can claim) - Natural Gas, Propane, or Oil Furnaces and Hot Water Boilers (up to $600; can be main or second home; you can include labor costs; homeowners or renters can claim) -Electric Panel Upgrade (up to $600; can be main or second home; you can include labor costs; homeowners or renters can claim) --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- -Electric or natural gas heat pumps (up to $2,000; can be main or second home; you can include labor costs; homeowners or renters can claim) -Electric or natural gas heat pump water heaters (up to $2,000; can be main or second home; you can include labor costs; homeowners or renters can claim) -Biomass stoves and boilers (up to $2,000; can be main or second home; you can include labor costs; homeowners or renters can claim) The maximum credit per year is $3,200. You can claim up to $1,200 for anything above the line and $2,000 for anything below the line. Also, new for 2025, it must be from a qualified manufacturer with a PIN or QM Code. (Insulation and Air Sealing Materials are exempt from needing a PIN.) As you can see, the credits can provide substantial savings for you at tax time. You can claim both credits on the same tax return and they do not affect each other’s limits. All items for either credit must meet certain standards-just calling themselves energy efficient is not sufficient. Installation of the improvement needs to occur on or before December 31, 2025-simply ordering it or prepaying for it does not count. Both credits are nonrefundable, which means if the credits are bigger than your tax liability, you will not receive the excess as a refund. In the case of the Residential Clean Energy Credit, any unused credit will carry forward to use in future years. The Energy Efficient Home Improvement Credit does not carry forward. If you have already installed energy efficient improvements this year, make sure to let your tax preparer know. If you still plan to install energy efficient improvements, you may want to consult your tax advisor before making your purchase to make sure you maximize your tax savings. Mike Sylvester, CPA

Clean Vehicle Credit

By Mike Sylvester • August 26, 2025

If you have been planning to buy a clean vehicle, you will want to act soon. Right now, there are tax credits for both individuals and businesses that can make buying an electric vehicle more enticing. However, the One Big Beautiful Bill will end these tax credits as of September 30, 2025! What is a clean vehicle? The IRS says that a clean vehicle is one that gets plugged in (aka an electric vehicle) or a fuel cell electric vehicle. Currently, if you buy a new clean vehicle for personal use, it can qualify you for the Clean Vehicle Credit. If you purchase a new car, the credit can be up to $7,500. Certain used electric vehicles can earn you a credit of up to $4,000. Tax credits are a dollar-for-dollar savings on your tax bill, so these are substantial savings! To qualify for the credit, the vehicle must meet several guidelines. To see if your vehicle qualifies, you can go to fueleconomy.gov. Also, the following income thresholds must be met: For new vehicles: -Modified AGI in the year of delivery (or the year before delivery) is no more than: -$150,000 if single, -$225,000 if head of household, -$300,000 if married filing jointly -Vehicle cost no more than -$55,000 if a sedan, -$80,000 if a SUV, pickup, or van For used vehicles: -Modified AGI is no more than: -$75,000 if single, -$112,500 if head of household, -$150,000 if married filing jointly -Vehicle cost no more than $25,000 In the case of businesses and tax-exempt organizations, the Commercial Electric Vehicle Credit allows a credit up to $7,500 for vehicles under 14,000 pounds and up to $40,000 for vehicles weighing 14,000 pounds or more. There are no income limits or price caps for businesses to qualify, but there are several eligibility requirements that must be met. You can go to fueleconomy.gov to see if your vehicle qualifies. Before taking these credits, you must make sure you did not get a point-of-sale rebate. Instead of waiting to get the tax credit when you file your taxes, you could have taken the option to take the credit at the time you purchased the vehicle which would have reduced the price you paid for the vehicle. You cannot have both a tax credit and a point-of-sale rebate for the same vehicle. Remember, these credits end September 30 th , 2025 so you must purchase and take delivery of your vehicle by then. Ensure you fill out your tax planner correctly so we can ensure you get these tax credits on your 2025 income tax returns. Mike Sylvester, CPA

The Tax Professional Industry Is Shrinking

By Mike Sylvester • July 31, 2025

The Tax Professional Industry Is Shrinking The number of Certified Public Accountants in the United States is shrinking, and this trend is only expected to continue—and likely get worse. Three hundred fifty thousand more people have left the accounting industry than have joined it since 2020, and this has been caused by: 75% of CPAs are at or nearing retirement age Fewer people are taking and passing the CPA exam Further, many employees are leaving because they do not like the insane hours and want to focus on improving their quality of life. In our area, one or two firms close each and every year. A lot of firms are consolidating and becoming larger. The total number of firms in our area is half of what it was back in 2008. This is expected to continue. Things are very difficult in our industry, and 530 different potential new clients called our firm last year—and we spent nothing on advertising. Realize we have a total of 950 clients today. Considering we do not advertise, this honestly tells you everything you need to know about our industry. A majority of CPA firms today are not taking on any new clients because they are full—or, more likely, overfull. The three most common reasons why new clients contact us are: Prior CPA retired or died Prior firm got bought out and they dislike the new firm They cannot get questions answered We are still taking on new clients; however, we are being choosy who we onboard. Our firm is fortunate. The average age of the ten people at our firm is 41 years old. Compared to other CPA firms, that is extremely young. We already have four CPAs. We have two employees who we expect will be CPAs within the next year and another who will be an Enrolled Agent. It is a great time to be a CPA! We look forward to working with you for many years! Mike Sylvester, CPA

The Internal Revenue Service is in Trouble

By Mike Sylvester • July 30, 2025

The Internal Revenue Service will lose 25% of its total workforce in early and mid-2025. Many in Congress want to cut the IRS workforce even more next year. The IRS was already struggling to do its job before so many people were let go. For example: The Fort Wayne office was closed, along with many other offices around the country. The phone system is terrible. It is hard to get an agent on the phone, and disconnections are very common. They are issuing a record number of notices to taxpayers. Most of the notices are wrong. Worse, they have removed much of the information that used to be listed on the notices. This makes it much harder to deal with those notices and requires us to call them more and write them more letters. Their computer systems are, in some cases, 40 years old and slowly failing. The IRS has to deal with the newly passed tax laws, which are extremely complicated and will require many new forms and instructions. We have several clients who have had to wait well over a year for items to be resolved, and we expect that to get worse. The IRS has its fifth Commissioner already this year, and the current Commissioner is completely unqualified for the job. The Indiana Department of Revenue (INDOR) is also declining; however, it is more functional than the IRS. INDOR is issuing more notices and has removed a lot of information from their notices as well. INDOR’s budget has been cut by 5% this year and another 5% the following year. It looks as if they will not be allowed to hire anyone for 27 months. Further, the IRS and INDOR both have an aging workforce, and a large number of employees will retire over the next few years. The taxing agencies are getting harder to deal with, and we expect the IRS will be very difficult to deal with. All of this will be difficult for both you and our firm to deal with it. That being said, we are developing a plan to deal with it! Mike Sylvester, CPA

One Big Beautiful Bill

By Mike Sylvester • July 29, 2025

Congress passed and President Trump signed into law major changes to the federal income tax code. These changes are very complicated and provide tax planning opportunities. Most of these changes are beneficial to taxpayers. Please ensure you read our email newsletters as we will be discussing many of the major provisions over the next few months. The changes are very complicated and: Some only affect certain years Most of them phase out at specified income levels Some require new forms Many require guidance from the IRS to be issued We will attend a large amount of training on these new provisions and do not expect much of the IRS guidance to be available until October 2025. Karena, Brent, and I can be hired to provide tax planning and help you minimize your income taxes. Please reach out to us in October of 2025. Mike Sylvester, CPA

Why You’re Getting More Tax Notices

By Mike Sylvester • June 25, 2025

Summer has arrived in Fort Wayne, Indiana. Both the Internal Revenue Service and The Indiana Department of Revenue are sending more incorrect tax notices. Worse both have changed their notices to provide little, or any information, forcing us to reach out to them and talk to them to find out what their notice means. Both agencies are struggling due to budget cuts. We expect this to get worse over the next couple of years. We are happy to help you with tax notices; however, they currently take a long time to resolve, and we charge separately for resolving tax notices. The Internal Revenue Service is in complete disarray due to DOGE cuts and some reports show that the IRS may only answer 16% of phone calls they receive next tax season. Further, we are seeing it take the IRS years in some cases to respond to notices, and it now often takes them 6 to 12 months to process amended returns, old year returns, and returns for those who are deceased. The tax agencies are much harder to deal with than they were five years ago; and we expect this to get worse due to budget cuts.

TaxDome Implementation

By Mike Sylvester • June 25, 2025

SBS CPA Group implemented TaxDome this year. Our clients really like the easy-to-use portal, and more than half of our clients are using this platform. We expect that number to grow significantly. We like TaxDome and have received great feedback from our clients. A copy of your tax returns is in TaxDome. You can retrieve them yourself any time. If you need help please reach out to Nikkie Reyes at Admin@sbscpagroup.com or call her at 260-407-5000 and she can help you retrieve a copy of your tax returns from TaxDome or, if needed, she can get them to you in another way. If you have not opted into TaxDome, please opt in. Just email Nikkie or call her and she will help you opt in. If you are married and file a joint return both of you need to opt into TaxDome. Opting into TaxDome is not required for current clients next year. We really like TaxDome, and you will too. Please give it a chance. Mike Sylvester, CPA

Social Security And Retirement: What You Should Know In 2025

By Mike Sylvester • June 17, 2025

The Original Purpose of Social Security: A Three-Legged Stool Social Security is a cornerstone of the United States' social safety net. Many Americans depend on this program to fund their retirement. The most recent data available from the Social Security Administration highlights the program's critical role in retirement planning. Social Security benefits account for approximately 30% of the income for individuals ages 65 and older. Retirement income was envisioned as a three-legged stool consisting of pensions, personal savings, and Social Security, each contributing one-third. The program was never intended to serve as the primary source of retirement income. Many Lower-Income Retirees Rely Heavily On Social Security 51.8% of individuals ages 65 and older depend on Social Security for half or more of their income. 24.7% of people in this age group rely on it for 90% or more of their income. Statistics Regarding Which Retirees Depend On Social Security The extent of reliance varies significantly by income quintile ; note the first quintile is the lowest 20% of taxable income and the fifth is the highest 20%: In the 1st quintile, 64.1% rely on Social Security for 90% or more of their income in retirement. In the 2nd quintile, 47.8% rely on Social Security for 90% or more of their income in retirement. All the way up to the 5th quintile, none of whom rely on Social Security for 90% or more of their income in retirement. Can Social Security Survive Beyond 2033? The program faces significant challenges. Without reform, Social Security will not be able to pay full benefits by 2033 . This presents a critical issue for Congress, as reductions in benefits are politically and socially untenable. Many changes are being made to the program via the Department of Government Efficiency. Further The Social Security Fairness Act was passed into law on January 5 and this brought more changes to the program. How Social Security Benefits Are Calculated Despite its importance, many people are unaware of how their Social Security benefits are calculated. Since the Social Security Administration ceased mailing statements in 2011, individuals must proactively set up an online account to access this information. The benefit formula is intentionally progressive, favoring lower-income earners by replacing a higher percentage of their income. For higher-income earners, Social Security becomes less significant as a percentage of their total retirement income. Terminology For Calculating Your Social Security Benefit 1. Credits: To qualify, individuals must earn 40 credits. In 2025, one credit is earned for every $1,810 in covered earnings (most often wages), with up to four credits given annually. 2. Average Indexed Monthly Earnings: The AIME figure is based on a worker's 35 highest-earning years, adjusted for inflation. If fewer than 35 years of earnings exist, zeros are averaged in. 3. Primary Insurance Amount: This is the monthly benefit a person receives at full retirement age. PIA is calculated using a formula adjusted annually for inflation. 2025 Social Security Payout Example: How The Formula Works Bend points are critical to the calculation and can be used to ensure you draw as much as possible in retirement. For a retiree with an AIME of $7,391 (This is annual wages of $88,692 in 2025 dollars): • 90% of the first $1,226 = $1,103.40 • 32% of the amount between $1,226 and $7,391 = $1,972.80. • Total PIA = $3,076.20 (before Medicare premiums). Strategies To Maximize Your Social Security Benefits To optimize benefits: • Aim for an AIME of at least $1,226, as the first tier yields a 90% replacement rate. • Understand that amounts above $7,391 are replaced at only 15%. Reviewing your lifetime earnings is crucial to ensure accuracy. Errors are far easier to correct early on than later on, when reconstructing decades-old income records may be challenging. Will Your Social Security Be Taxed? What Retirees Should Know Since 1983, up to 85% of Social Security income has been subject to federal taxes, depending on other income sources. This makes the program more progressive but also adds complexity to retirement planning. Consider discussing this with your tax professional and financial planner. When Should You Start Collecting Social Security? When to begin drawing Social Security benefits is a critical decision, particularly for married couples. Meeting with a qualified financial planner may be appropriate. Starting benefits early results in reduced monthly payments, while delaying up to age 70 increases them. Careful analysis and planning are essential to maximize lifelong benefits. Final Thoughts: Why Understanding Social Security Matters More Than Ever Social Security is a vital program for most Americans. Understanding its mechanics and planning effectively can significantly impact your retirement security and should be carefully considered before retirement. I do some consulting on this topic and if you want to hire me to do some Social Security planning please send me an email at Mike@sbscpagroup.com . Mike Sylvester, CPA