social-security – Baker Asset Management, LLC

A Comprehensive Guide: Are Your Social Security Benefits Taxable?

You may have paid Social Security taxes throughout your working years, so it is natural to wonder whether those benefits can be taxed again in retirement. The answer is that, for many people, some portion of Social Security benefits can be subject to federal income tax.

It is one of the most common questions pre-retirees and new retirees ask. The rules are not always intuitive, and misunderstanding them can lead to an unexpected tax bill that affects your retirement income plan.

That is why this guide is designed to help you understand when Social Security benefits may be taxable, how the calculation works, and what it can mean for your broader financial strategy.

The Key Concept: “Combined Income”

The IRS uses a specific formula to calculate your income for Social Security tax purposes. Your Social Security number (SSN) does not determine your taxability; rather, it’s about your total financial picture.

To understand if your benefits are taxable, you must first determine your Combined Income, also known as Modified Adjusted Gross Income (MAGI).

The Combined Income Formula:

Combined Income = Adjusted Gross Income (AGI) + Nontaxable Interest + 50% of Your Social Security Benefits

Think of it as adding all your taxable income (like wages, pensions, and capital gains) plus your tax-exempt interest income (e.g., from municipal bonds), and then adding exactly half of your total Social Security benefits.

Navigating Federal Income Brackets

Once you have your Combined Income, the IRS uses three income thresholds to calculate the percentage of your benefits that are taxable at the federal level. The limits are different for individuals and married couples filing jointly:

If You File as “Single,” “Head of Household,” or “Qualifying Widow(er)”:

Under $25,000: 0% of your benefits are taxable. (Congratulations, you might get all your Social Security tax-free!)
$25,000 to $34,000: Up to 50% of your benefits may be subject to tax.
Over $34,000: Up to 85% of your benefits may be taxable.

If You File as “Married Filing Jointly”:

Under $32,000: 0% of your benefits are taxable.
$32,000 to $44,000: Up to 50% of your benefits may be subject to tax.
Over $44,000: Up to 85% of your benefits may be taxable.

Note on “Up to”: The 50% and 85% are maximums. The calculation is dynamic. For illustrative examples of precise tax situations, you would need to run detailed scenarios, but these brackets give you the essential ranges.

Don’t Forget About State Taxes

While federal rules apply across the entire country, state-level rules vary significantly.

Across the United States: The vast majority of states (42 states plus Washington, D.C.) exempt Social Security benefits from state income taxes entirely. However, a small handful of states—including Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont—still tax a portion of Social Security income based on state-specific thresholds.

If you are considering moving or splitting time between states in retirement, factoring state-level taxation into your plan is just as vital as federal planning.

What This Means for Your Financial Strategy

Understanding these rules is about more than just a tax form. It affects everything from your monthly cash flow to your overall retirement strategy.

1. Unexpected Taxes

A larger-than-expected tax bill can reduce the cash flow you thought you had available for spending.

2. Withdrawal Strategy

Where you draw income from matters. Pulling too much from taxable accounts or traditional retirement accounts can increase your provisional income and make more of your Social Security benefits taxable.

3. RMDs

Required minimum distributions can create a ripple effect. If RMDs raise your income enough, they can increase the taxable portion of your Social Security benefits as well.

4. Coordination Matters

Planning withdrawals from Traditional IRAs, Roth IRAs, brokerage accounts, and other sources together can help create a more tax-efficient retirement plan.

Taking the Next Step

These rules are manageable once you understand the framework, but they can still be complicated when you apply them to your own numbers. Your situation may also change over time as income, investment returns, tax law, and retirement needs change.

If you are making retirement income decisions, it is wise to consult a qualified financial professional or tax professional. They can help you run scenarios using your actual figures and build a withdrawal strategy that fits your goals.

The bottom line: Social Security benefits are not always tax-free in retirement, and the amount subject to tax depends on your overall income picture. With the right planning, you can better understand the rules and make smarter decisions about your retirement cash flow.

Please comment or send an email if you have any questions.

Joe Baker, CFP®

Baker Asset Management, LLC

joebaker@bakerassetmanagement.com

The Ball is in Their Court: How Congress Can Avert the Social Security Cliff

Social Security isn’t failing because of a lack of math; it’s stalling because of a lack of movement in Washington. While the program’s trust funds are undeniably shrinking, this is a crisis of legislative willpower rather than a lack of solutions. The 2025 Trustees Report makes it clear that the “safety net” is held up by a fraying rope, but Congress still holds the scissors—and the spool of thread. To save the program, lawmakers must stop treating Social Security as a political “third rail” and start treating it as a standard legislative repair project.

The Current Trajectory (2025 Trustees Report)

According to the Social Security Board of Trustees’ 2025 Annual Report, the timeline for action has narrowed. The report underscores that without intervention from the Capitol, the following milestones are inevitable:

The 2033 Deadline: The Old-Age and Survivors Insurance (OASI) Trust Fund—the primary source for retiree benefits—is projected to be depleted in 2033.
The Enforced Benefit Cut: Under current law, once reserves are gone, the Social Security Administration cannot pay full benefits. By 2033, incoming tax revenue would only cover 77% of scheduled payments, resulting in an immediate 23% cut for all beneficiaries unless Congress changes the law.
Growing Deficit: The 75-year actuarial deficit has risen to 3.82% of taxable payroll, meaning the gap Congress needs to bridge is larger than it was just one year ago.

The Congressional “Fix-It” List

Congress has several specific levers they can pull to stabilize the system for the next 75 years without cutting benefits for those who rely on them most. Fixing the program will likely require a “grand bargain” involving these components:

Scrapping the Earnings Cap: Currently, Social Security taxes are only collected on income up to $176,100 (for 2025). High earners stop paying into the system once they hit that mark. Congress could eliminate this cap or create a “donut hole” (e.g., taxing income above $250,000) to ensure the wealthiest Americans contribute at the same rate as the middle class. I feel this is the best way to fix the problem and can be implemented quickly.
Gradual Payroll Tax Adjustments: The 12.4% payroll tax (split between you and your employer) hasn’t moved in decades. A tiny, phased-in increase—such as 0.1% per year—would be barely noticeable on a weekly paycheck but would pour billions back into the trust fund over time.
Modernizing the Benefit Formula (The “Six-Figure Limit”): Lawmakers are currently debating a cap on maximum benefits for high-income couples (e.g., a $100,000 limit). By slowing benefit growth for the top 1–5% of earners, Congress can redirect funds to keep the program solvent for everyone else.
Longevity Indexing: For younger generations, Congress could index the retirement age to life expectancy. This would mean the age moves by mere months over several decades, reflecting the reality that we are living longer than the workers of 1935.

The math behind Social Security is straightforward; the politics are what’s complicated. We don’t need a miracle to save Social Security; we need a Congress that is willing to trade short-term political points for long-term national stability. By acting now, lawmakers can implement small, gradual changes that protect current retirees and guarantee a future for the next generation. The 2033 “cliff” is seven years away—it’s time for Washington to pick up the tools and get to work.

Please comment or send an email if you have any questions.

Joe Baker, CFP®

Baker Asset Management, LLC

joebaker@bakerassetmanagement.com

The Social Security Break-Even: Is Waiting Until Age 70 Worth the Risk?

Deciding when to claim Social Security involves balancing immediate financial needs against long-term benefit growth. While you can start as early as age 62, your monthly payment increases for every month you delay until age 70, making the difference in the benefit amount significant in most cases. It’s a high-stakes decision because the choice you make now is largely permanent and affects how much you’ll receive every month for the rest of your life. To help cut through the confusion, here’s a simple step-by-step logic flow to help you decide which age makes the most sense for your health, your work life, and your family.

Social Security Claiming Flowchart

Do you have an immediate, urgent need for cash to meet basic living expenses?
- YES: Claim at age 62. Note that your benefits will be permanently reduced by up to 30% compared to your full retirement age.
- NO: Go to Step 2.
Are you still working and earning above the annual limit ($24,480 in 2026)?
- YES: Consider waiting until your Full Retirement Age (FRA). If you claim before FRA while working, Social Security may temporarily withhold $1 for every $2 you earn above the annual limit.
- NO: Go to Step 3.
What is your health status and expected longevity?
- POOR HEALTH / LOW LONGEVITY (Expected life < 77 years): Claim early. Taking smaller payments for more years often results in a higher total lifetime value if you do not expect to live past your late 70s.
- GOOD HEALTH / FAMILY LONGEVITY (Expected life > 81 years): Wait until Age 70. Delaying past your FRA earns you 8% more in Delayed Retirement Credits for every year you wait, maximizing your monthly check for life.
- AVERAGE: Go to Step 4.
Are you married and the higher-earning spouse?
- YES: Wait until age 70. This maximizes the survivor benefit for your spouse if you pass away first.
- NO: Claim at FRA (Age 66-67). This provides 100% of your earned benefit without reductions or further delays.

Don’t forget that The Social Security site has a plethora of good information and tools to help you make the best decision for your situation.

At the end of the day, the goal is to maximize your peace of mind. If you need the money now or have health concerns, taking benefits early is a perfectly valid safety net. However, if you are healthy and can afford to wait, ‘buying’ a bigger paycheck by delaying can be the best insurance policy against outliving your savings. Use these guidelines as a starting point but always check your latest earnings statement on the SSA website to see the exact dollar amounts you’re working with.

Please comment or send an email if you have any questions.

Joe Baker, CFP®

Baker Asset Management, LLC

joebaker@bakerassetmanagement.com

Maximize Your Tax Savings with the Senior Bonus Deduction

Starting in 2025, a new temporary federal tax break known as the “Senior Bonus Deduction “is available to taxpayers aged 65 and older. Enacted under the One Big Beautiful Bill Act (OBBBA), this provision is designed to provide additional tax relief through the 2028 tax year.

Key Features of the 2025 Senior Deduction

Deduction Amount: Eligible individuals can deduct up to $6,000 from their taxable income.
Married Couples: If both spouses are 65 or older and file a joint return, they can claim a combined deduction of $12,000.
“Stackable” Benefit: This deduction is in addition to the regular standard deduction and the existing “additional standard deduction” for seniors.
Accessibility: You can claim this deduction regardless of whether you take the standard deduction or itemize your deductions.

Eligibility and Income Limits

The full deduction is only available to those under specific income thresholds based on their Modified Adjusted Gross Income (MAGI):

Filing Status	Full Deduction Income Limit	Phase-Out Range
Single / Head of Household	Up to $75,000	$75,001 – $175,000
Married Filing Jointly	Up to $150,000	$150,001 – $250,000

Phase-Out Rule: For every $1 your MAGI exceeds the limit, the deduction is reduced by 6 cents until it reaches zero.
Age Requirement: You must be 65 or older by December 31, 2025.
Exclusion: The deduction is not available to those who use the “Married Filing Separately” status.

Impact on Social Security

While often discussed as a “No Tax on Social Security” measure, the law does not technically eliminate federal taxes on Social Security benefits. Instead, the $6,000 deduction serves to lower your overall taxable income, which for many seniors with modest incomes effectively offsets the portion of their Social Security that would have been taxed.

Maximum Combined Deductions for 2025

For a senior taking the standard deduction, the total amount of income sheltered from federal tax in 2025 could reach:

Single (65+): $23,750 ($15,750 base + $2,000 age-based + $6,000 new bonus).
Married (Both 65+): $46,700 ($31,500 base + $3,200 age-based + $12,000 new bonus).

Please comment or send an email if you have any questions.

Joe Baker, CFP®

Baker Asset Management, LLC

joebaker@bakerassetmanagement.com

How Social Security Interacts with Medicare

I was doing some research for a client on this topic a few days ago and thought it would be beneficial to post some basics of how the Social Security and Medicare programs interact with each other.

Social Security and Medicare are separate programs serving our country’s senior citizens as well as the disabled. But they do intersect in a big way: Social Security handles enrollment for Medicare Part A (hospital insurance) and Part B (medical insurance).

For most people, Medicare eligibility starts at age 65. If you are already receiving social security benefits at that time, you will be automatically enrolled in parts A and B. If you need a refresher on Medicare, here’s a nice overview of its different parts: https://www.ssa.gov/medicare/plan/medicare-parts.

If you have not yet filed for Social Security benefits, you will need to apply for Medicare yourself. You can do so any time during the initial enrollment period, which lasts seven months. This period starts three months before the month you turn 65 and ends three months after your birthday month. So, if your birthday is July 15^th, the sign-up window runs from April 1 through Oct. 31. If you do not enroll during that period, you could end up paying penalty fees if you do so later.

Now let’s look at how you pay for Medicare. Most people don’t pay a monthly premium for Part A because they or a spouse paid Medicare taxes for at least 10 years while working.

For Part B, there is a monthly premium that you pay, currently $174.70 per person in 2024. This is automatically deducted out of your Social Security benefit payments, if you are receiving them. If you haven’t started receiving your Social Security benefit payments yet, you can pay by mail or via online bill payment.

If your annual income exceeds a certain amount, you will have to pay a higher premium for Part B and Medicare prescription drug coverage premiums (also known as Medicare Part D).

Here’s the 2024 table for monthly Medicare premiums:

So, if you are a married couple with a MAGI below $206,000, you’ll only be paying $174.70 each per month in 2024.

Both the Social Security and Medicare programs are so complex. Be sure to do your research or contact program experts to answer your questions.

If you want more details on all things Medicare and Social Security, the best source is here: https://www.ssa.gov/.

Please comment or send an email if you have any questions.

Joe Baker, CFP®

Baker Asset Management, LLC

joebaker@bakerassemanagement.com

Two Most Important Factors To Consider When Choosing SS Benefits Age

Social security retirement benefits provide a major source of income for most retirees in the U.S. In fact, about 40% of retirees rely solely on social security income. So, it is important to know when to start taking it to maximize your benefit. The decision is basically a bet with the government on how long you are going to live. Therefore, like any bet, you should gather as much information as possible to move the odds in your favor.

Here’s what I consider are the two most important factors that you should consider before deciding when to start taking social security:

Financial Needs: This should be looked at first because if you need the money, you can stop the analysis and just take the money at age 62. If you’re not sure, then the next step is to consider your retirement income sources. If you have a 401k, IRA, pension, savings, or plan to keep working, you might be able to delay benefits. However, if you plan on relying heavily on Social Security, starting benefits earlier could be necessary. If you can swing it, it definitely pays to wait, because your benefit increases by about 8% for every year you wait. That’s a huge difference in payments, especially extrapolating it out over twenty years or more.
Life Expectancy: So, if you decided that you don’t need the money at age 62, then you need to analyze what your expected lifespan will be. If you have a family history of longevity, delaying benefits might be wise to maximize the total amount you receive over your lifetime. Conversely, if you have health concerns or a shorter life expectancy, taking benefits earlier ensures you get more money while you can.

I have run the numbers for a bunch of people with all different scenarios and I have found that the breakeven point for most people is between ten and twelve years. This is the number of years that it would take for the total of your payments starting at age 70 to equal the total payments received if started at age 62. That means if you think that you’ll live to 85 (15 years past age 70), which is the age that you receive the maximum benefit, then you should delay taking benefits until age 70 in order to get the most money over your lifetime.

You also want to consider if you want that extra income while you are younger, to use for things, such as traveling, that you might not be able to do when older.

If you’re still not sure what to do after looking at the two factors above, here are some additional things to consider as well:

Work Status: If you continue working past your full retirement age (age 67 for anyone born after 1960), your benefits might be reduced until you reach FRA. However, your benefit amount will be recalculated later to include those working years.
Marital Status: Married couples have additional considerations. The benefit you receive might depend on your spouse’s earnings history and claiming decisions.

Tax implications: Social Security benefits can be taxed depending on your total income. Here’s the details: http://www.ssa.gov/planners/taxes.html
Healthcare coverage: If you retire before 65, you might lose employer-provided health insurance and need to consider alternatives.

Everyone’s situation is unique, so it is worth it to take the time and figure out the best strategy to maximize your social security retirement benefit. By weighing the factors listed above and using the resources available on the Social Security Administration’s website, www.ssa.gov, you can make an informed decision about when to claim your Social Security benefits.

Please comment or send an email if you have any questions. Thanks!

Joe Baker, CFP®

Baker Asset Management, LLC

joebaker@bakerassemanagement.com