Sauder & Stoltzfus Blog

Preface: “Customers pay only for what is of use to them and gives them value. Nothing else constitutes quality.” —Peter F. Drucker

The Price Is More Than a Number: Why Smart Pricing Determines the Long-Term Success of a Retail Business

Walk into two retail stores selling nearly identical products, and you’ll often notice something intriguing: their prices can be remarkably different. One retailer competes aggressively to offer the lowest price, while the other confidently charges 10%, 20%, or even 30% more for what appears to be the same item. At first glance, the lower-priced retailer seems destined to win. Yet over time, the opposite is often true. The retailer with higher prices frequently enjoys stronger profits, better employees, superior customer service, healthier cash flow, and greater opportunities to invest in growth. The difference isn’t simply the product on the shelf—it’s the pricing strategy behind it.

Many business owners think of pricing as a simple math equation: determine the cost of a product, add a markup, and arrive at the selling price. While that approach is straightforward, it overlooks one of the most important principles of business. Pricing is not merely a financial calculation; it is a strategic decision that influences profitability, customer perception, employee opportunities, and the long-term health of the business. Legendary investor Warren Buffett captured this idea perfectly when he said, “Price is what you pay. Value is what you get.” Successful retailers understand that customers are purchasing far more than a product. They are buying convenience, trust, expertise, reliability, and an overall experience.

Peter Drucker, often referred to as the father of modern management, famously wrote, “The purpose of business is to create and keep a customer.” Pricing plays a central role in accomplishing both objectives. It communicates the value of a product and sends a message about the business itself. A price tag is more than a number—it reflects the confidence a company has in its products, services, and ability to meet customer expectations. Instead of asking, “What does this product cost me?” successful retailers ask a much more powerful question: “What value does this product create for my customer?” That subtle shift in thinking can transform an entire business.

There are several pricing models that retailers commonly use, and each has its strengths and weaknesses. The most familiar is cost-plus pricing, where a retailer calculates the cost of an item and adds a desired profit margin. It is simple, consistent, and easy to manage. However, cost-plus pricing has one significant limitation—it ignores the customer’s perception of value. Two businesses may have identical costs, yet one can command significantly higher prices because of its reputation, exceptional service, product expertise, or customer experience. Cost should influence pricing, but it should not be the only factor.

Many of the world’s most successful companies rely on value-based pricing rather than cost-based pricing. Apple provides one of the best examples. Consumers rarely purchase Apple products because they are the least expensive option. They willingly pay premium prices because they value innovation, design, reliability, customer support, and the seamless integration of Apple’s ecosystem. The lesson for retailers is clear: customers do not always buy the lowest price—they often buy the greatest confidence. Businesses that consistently create exceptional value often discover that customers are willing to reward that value with greater loyalty and higher prices.

Competitive pricing is another common strategy, particularly in industries where customers can easily compare prices. While it is important to understand what competitors are charging, competing solely on price often becomes a race to the bottom. Every discount reduces the resources available to hire talented employees, improve customer service, invest in technology, or renovate a store. Jeff Bezos once observed, “Your margin is my opportunity.” When businesses sacrifice their margins in pursuit of volume, they frequently sacrifice their ability to build a stronger company.

Technology has also introduced dynamic pricing, where prices fluctuate based on demand, inventory levels, seasonality, and customer behavior. Airlines, hotels, online retailers, and even entertainment venues adjust prices regularly to maximize profitability. While not every retailer requires sophisticated pricing software, business owners should recognize that pricing does not always have to remain static. Thoughtful adjustments based on market conditions can improve both sales and profitability.

Another effective strategy is premium pricing. Luxury brands intentionally charge more because price itself communicates quality, exclusivity, and prestige. Consumers often associate higher prices with better craftsmanship, superior service, or greater reliability. Of course, premium pricing requires businesses to consistently deliver an experience that justifies the higher price. Customers will gladly pay more when they believe they are receiving more.

Pricing is also deeply rooted in psychology. Retailers have long understood that consumers do not always make purchasing decisions based purely on logic. A price of $19.99 often feels significantly different than $20.00, despite the one-cent difference. Businesses use techniques such as bundling products, offering limited-time promotions, creating loyalty programs, and strategically positioning premium products alongside standard offerings to influence purchasing decisions. These strategies are not about deceiving customers; they are about helping customers recognize value in different ways.

One of the most common mistakes I observe as a CPA working with business owners is chronic underpricing. Many entrepreneurs believe that lowering prices will automatically generate more sales and greater success. Sometimes it does increase sales volume, but it often produces unintended consequences. Lower margins reduce cash flow, limit investments in technology, delay facility improvements, restrict employee development, and create unnecessary financial stress. Businesses simply cannot discount themselves into long-term prosperity. Jim Collins, author of Good to Great, reminds us that “Greatness is not a function of circumstance. Greatness is largely a matter of conscious choice.” Pricing is one of those choices.

Over the years, I have also noticed several recurring pricing mistakes. Some businesses compete almost exclusively on price instead of communicating their unique value. Others fail to analyze profitability by product line, allowing high sales to mask poor margins. Many underestimate the lifetime value of loyal customers and focus too heavily on attracting new ones through discounts. Others reduce prices before exploring ways to enhance the customer experience through better service, stronger warranties, or greater convenience. Finally, many business owners pursue higher sales volume without considering whether those additional sales actually improve profitability. Growth without healthy margins is difficult to sustain.

Every retailer should periodically step back and ask several important questions. Why do customers choose our business? What unique value do we provide that competitors cannot easily replicate? Are we pricing for today’s survival or tomorrow’s growth? Which products truly generate profit, and which simply drive traffic? Are we measuring sales, or are we measuring profitability? These questions often uncover opportunities that no spreadsheet alone can reveal.

Ultimately, pricing is far more than an accounting exercise. It reflects how business owners value their products, their employees, their customers, and their future. Healthy profit margins provide the resources necessary to hire exceptional people, invest in technology, improve customer experiences, and withstand economic uncertainty. Peter Drucker wisely observed, “Efficiency is doing things right; effectiveness is doing the right things.” Pricing is one of those “right things.” It deserves the same thoughtful attention as leadership, strategic planning, and customer service.

The next time you review your pricing strategy, resist the temptation to ask only, “What should we charge?” Instead, ask the more meaningful question: “How can we create greater value for our customers?” Businesses that focus on delivering exceptional value, rather than simply offering the lowest price, position themselves for sustainable growth and long-term success. In the end, the price attached to your products communicates much more than their cost—it tells customers what kind of business you are and what kind of future you intend to build.

Preface: “We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.” –– Franklin D. Roosevelt, Statement on Signing the Social Security Act

Social Security – Claiming Family Member and Survivor Benefits

The following is the third in a series of blog posts on the subject of Social Security. The first two installments, which can be found here and here:

• • • Reviewed the history of the Social Security program
    • Listed the different types of Social Security benefits
    • Explained how to claim Social Security retirement benefits

This third installment will discuss:

• • • Claiming family member benefits
    • Claiming survivor benefits

Future posts in this series will address:

• • • How earned income is taxed to fund Social Security
    • How Social Security benefits are taxed
    • Estimating Social Security’s return on investment

Social Security is known as a sort of a pension plan, as the retirement benefits do provide partial income replacement for retirees. But Social Security boasts a generous number of other types of benefits. Survivor benefits function as a sort of a life insurance for the benefit of dependents whose providers have passed away. And family member benefits, in particular spousal benefits, provide supplemental income to family members of living retirees.

Family Member Benefits

Family members of people who are receiving Social Security retirement benefits can, if certain conditions are met, receive their own benefits that are computed as a percentage of the benefit received by the recipient of the retirement benefit. Before we delve into the details of which family members are eligible and what percentage they receive, it is important to understand that family member benefits do not come at the expense of the retirement benefits.

EXAMPLE:

I am retired and eligible to receive a $2,000 per month Social Security retirement benefit. My wife is entitled to a spousal benefit worth 50% of mine. She will receive $1,000 per month in addition to my $2,000 per month. Her benefit will not be deducted out of my benefit.

And so for all family member benefits (but see The Family Maximum at the end of this article).

Another important principle of family member benefits is that anyone who is eligible for his or her own retirement benefit cannot claim both that retirement benefit and a family member benefit. Generally, you will choose the benefit that is larger.

EXAMPLE:

I am retired and eligible to receive a $2,000 per month Social Security retirement benefit. My wife is entitled to a spousal benefit worth 50% of mine. However, she is also entitled to a retirement benefit in her own right.

If her retirement benefit is larger than $1,000, she is better off taking that and foregoing the family member benefit.

If her retirement benefit is larger than $4,000, then I am better off foregoing my own retirement benefit as I can instead claim a family member benefit worth 50% of hers.

Both spouses and dependent children may receive family member benefits. Neither type of benefit can be more than 50% of the value of the retirement benefit. For this purpose, the base amount is the retirement benefit as claimed by the retired individual at full retirement age (FRA). Current law defines (FRA) for people born in 1960 and after as 67. As covered in a previous blog post, a retiree can claim a larger amount by waiting until past FRA to claim. However, family member benefits are in any case based on the FRA benefit.

A spouse must be 62 years or older to receive the family member benefit, or any age if taking care of a child who is younger than age 16 or has a qualifying disability.

The percentage value of a spousal benefit depends on the spouse’s own age when claiming the benefit. At full retirement age (FRA), the spouse can claim the maximum 50%. For each year before FRA, the percentage is reduced slightly, down to a minimum of 32.5% if claiming at age 62.

A dependent child must be younger than 18 to receive the family member benefit, or younger than 20 if a full-time student, or any age if having a disability that began before age 22.

Dependent child benefits are generally not less than 50% of the retirement benefit. But see The Family Maximum at the end of this article

Employing a Spouse as a Social Security Strategy

There is no legal impediment to employing your spouse. A spouse-employee should be paid a wage comparable to what you would pay a non-related employee for doing the same work. If you decide to do this, you should understand that you are making your spouse an employee who must be paid for work that is actually performed, the same as any other employee. You cannot just pay part of your salary to your spouse and then expect that your spouse can claim Social Security credit on it. If you both perform work for the business, you must each receive a salary based on your respective roles. As your spouse’s employer, you will be paying the employer share of Social Security and Medicare taxes (FICA) based on your spouse’s wages. The only special dispensation you have as a spouse-employer is that you do not have to pay FUTA (federal unemployment) taxes on a spouse’s wages.

If the only reason for employing your spouse is to build eligibility for future Social Security benefits, consider that a spouse is in any case entitled to family member benefits when you retire based on your earnings.

Survivor Benefits

Three types of dependents may qualify for Social Security survivor benefits based on a deceased family member’s Social Security retirement benefits:

• • • Spouses and ex-spouses who were married to the deceased at least 9 months, have not remarried, and are age 60 or older (age 50 or older if with a disability)
    • Children age 17 and younger, or aged 18-19 and in K-12 education, or any age if with a disability acquired at age 21 or younger
    • Dependent parents age 62 or older who have not remarried and who are not receiving Social Security benefits in their own right that would be greater than the survivor benefit.

Survivor benefits are paid as a percentage of the benefits that would have been paid to the deceased at full retirement age (FRA).

Children receive payments at 75%.

The value of a payments for a spouse or ex-spouse depends on the spouse’s or ex-spouse’s own age when claiming the benefit. At full retirement age (FRA), the spouse or ex-spouse can claim 100%. For each year before FRA, the percentage is reduced slightly, down to a minimum of 71.5% if claiming at age 60.

A lone dependent parent receives 82.5% percent and two dependent parents receive 75% each.

Lump-sum Death Payment

SSA also offers a one-time payment, currently $255, to a surviving spouse. Or, if there is no spouse, to children according to the same age limits as would be eligible for survivor benefits.

This payment must be applied for within 2 years of the family member’s death.

The Family Maximum

While these benefits are generous, the SSA does impose a limit on the total benefits payable to the family of a beneficiary. This restriction was introduced in 1980 as one of Congress’s many attempts to control the costs of Social Security by reducing payments to families they suspected were relatively well off.

Note that this is a limitation on benefits paid to members of the same family based on the monthly amount paid to one recipient of Social Security retirement benefits. If two spouses each receive their own retirement benefits, they are not subject to limits based on the other’s benefits.

The monthly maximum is calculated as follows:

• • • Start with the baseline monthly retirement benefit of the individual beneficiary as computed at FRA.
    • This monthly amount is divided into four segments. For 2026, these segments occur at $1,643, $2,371 and $3,093. These are known as “bend points”.
    • Income up to the first bend point is multiplied by 150%, above the first and up to the second by 272%, above the second and up to the third by 134%, and above that by 175%.
    • Add these four amounts together, and that is the maximum monthly benefit for that beneficiary’s family.

Benefits received by ex-spouses aren’t counted toward the family maximum.

The concluding graph shows the monthly maximum family benefit as a function of baseline recipient benefit value at Full Retirement age (FRA). Note that for 2026, the maximum retirement benefit at FRA is $4,152 per month.

As we pause for Independence Day, we are grateful for the blessings we enjoy in this country — for freedom, peace, and the opportunity to live and serve according to conscience.

We are also grateful for the privilege of serving our clients, and we do not take lightly the trust you place in us.

Above all, we remember that every good gift comes from God, and our highest allegiance is to His kingdom. May we use the blessings we have been given with humility, gratitude, and love for our neighbors.

Wishing you a peaceful and blessed Fourth of July.

Preface: “The first responsibility of a leader is to define reality. The last is to say thank you. In between, the leader is a servant.” — Max De Pree

Building a Legacy That Lasts: Seven Decisions Every Business Owner Should Make Before It’s Too Late

In our previous blog article, we discussed why estate planning is far more than a legal exercise. It is one of the key final leadership decisions a business owner makes. It is an act of stewardship that protects a lifetime of diligent work, and the people who depend on the business.

Yet recognizing the importance of estate planning is only the first step.

The more difficult question asked less often is this: What does effective estate planning actually look like for a business owner?

After working with hundreds of entrepreneurs over the years, I have noticed something remarkable. The businesses that transition successfully are rarely the ones with the most assets. Instead, they are the ones whose owners made intentional decisions long before those decisions became urgent.

Benjamin Franklin wisely observed, “By failing to prepare, you are preparing to___________.” Few statements are more applicable to business succession.

Here are seven important decisions every business owner should thoughtfully consider.

Decision #1: Know What Your Business Is Worth

One of the most common questions I hear is, “What do you think my business is worth?”

Ironically, many owners have spent decades building their largest financial asset without ever determining its fair market value.

An objective business valuation provides much more than a number. It provides clarity.

It becomes the foundation for estate planning, gifting strategies, buy-sell agreements, succession planning, shareholder transactions, and retirement planning. More importantly, it helps owners make informed decisions instead of emotional ones.

As Peter Drucker famously said, “What gets measured gets managed.” Understanding the value of your business is one of the first steps toward protecting it.

Decision #2: Separate Ownership from Leadership

One of the greatest misconceptions in succession planning is believing that ownership automatically creates leadership. Business consultants and advisors know it does not.

Many children inherit businesses they have no desire to operate. Likewise, many outstanding leaders never become owners.

Great estate planning recognizes this distinction.

Ask yourself:

• • • Who should own the business? Then, who is best equipped to lead it? Are those the same people?

The answers may be different, and that is perfectly acceptable—provided they are intentional.

Decision #3: Prepare Leaders Before You Need Them

Merle Herr once wrote, “It’s the new, difficult, and inspiring that calls us forward.”

Businesses rarely survive because of one extraordinary individual. They thrive because leaders intentionally develop other leaders.

If something happened to you tomorrow, who could make difficult decisions?

Who understands your business? Who carries your values? Who would your employees naturally follow?

Succession planning begins years before succession occurs.

Decision #4: Put Agreements in Writing

Many business owners rely on verbal understandings.

“We’ve already talked about it.” “My children know what I want.” “My partner and I have an understanding.”

Unfortunately, difficult circumstances often reveal that memories differ.

Buy-sell agreements, shareholder agreements, operating agreements, and succession plans provide clarity during emotionally challenging times. They remove uncertainty and reduce the potential for conflict.

Clear agreements are not signs of mistrust. They are invaluable gifts to those who remain.

Decision #5: Build Liquidity into the Plan

One challenge many successful businesses face is that wealth is often tied up in the business itself.

A profitable company may have significant value while generating little liquidity for ownership transitions, estate obligations, or buyouts.

This is where thoughtful planning becomes essential.

Whether financing strategies, staged transitions, or other planning techniques, business owners should consider how future obligations will actually be funded—not merely hoped for.

Decision #6: Bring Your Advisors Together

One of the greatest mistakes I observe is that business owners often have excellent advisors working independently.

The attorney drafts legal documents. The CPA prepares tax returns. The financial advisor manages investments.

The banker provides financing. Each professional may perform exceptional work, yet no one is coordinating the overall strategy.

The strongest estate plans emerge when advisors work together with one shared objective: protecting the owner’s family, business, and legacy.

Decision #7: Communicate Your Vision

Perhaps the most overlooked element of estate planning is communication.

An estate plan should never become a surprise discovered in a filing cabinet.

Family members should understand your intentions.

Business partners should understand the transition process.

Key employees should understand their future responsibilities.

Communication cannot eliminate every challenge, but it can eliminate much of the uncertainty that often accompanies transitions.

As Stephen Covey wisely stated, “Begin with the end in mind.” That principle applies not only to leadership but to legacy.

The Greatest Asset You Leave Behind

Many business owners believe their greatest asset is their company.

I would respectfully disagree. Your greatest asset is the people your leadership has influenced.

The employees whose careers you helped shape. The customers whose trust you earned. The family whose future you protected.

The next generation of leaders you intentionally developed.

Businesses may eventually change ownership. Buildings may be sold. Equipment will eventually wear out. Even financial wealth will be distributed.

Character, values, and effective leadership, however, have the potential to endure.

A Final Reflection

There is an old proverb that says:

“A society grows great when wise men plant trees whose shade they know they shall never sit in.”

Business ownership is much the same. The finest entrepreneurs understand that their responsibility extends beyond quarterly profits and annual tax returns.

They recognize that true stewardship means preparing others to succeed long after they themselves are gone.

Estate planning is not about anticipating an end. It is about ensuring that everything you have spent your life building continues to bless your family, your employees, your customers, and your community.

That may be the greatest leadership decision you will ever make.

Preface: “Transfer wisdom before wealth.” — Ron Blue, Splitting Heirs

Why Estate Planning Matters More Than You Think

The greatest threat to many family-owned businesses is not competition, taxes, inflation, or economic recessions. It is a lack of appropriate preparation for the future.

Estate planning is one such consideration. Most business owners spend years, and often decades, building something that matters. They work, they sacrifice evenings and weekends. They weather economic downturns. They take risks that others are unwilling to take. They create jobs, serve customers, support their communities, and provide opportunities for their families and employees.

Yet surprisingly, many business owners spend more time planning next year’s budget than planning for the future of everything they have spent a lifetime building.

That is where estate planning enters the picture. Unfortunately, many people hear the words “estate planning” and immediately think of attorneys, legal documents, taxes, trusts, and paperwork. While those components are certainly important, they miss the larger point. Estate planning is not primarily about documents. It is about stewardship. It is about leadership. It is about ensuring that the people, values, and organizations that matter most continue to thrive when you are no longer able to lead them.

Imagine for a moment that a successful business owner unexpectedly passes away. The company has loyal employees, strong customer relationships, profitable operations, and a respected reputation in the marketplace. Yet within days, uncertainty begins to spread. Who has authority to make decisions? Who signs payroll? Who can access the bank accounts? Who owns the company? Will the business continue? Will employees keep their jobs? Will family members agree on the future?

These questions are not hypothetical. They occur every year in businesses across the country. In many cases, the problem is not that the business lacked profitability or opportunity. The problem is that the owner never developed a plan for transition.

For most entrepreneurs, their business represents far more than an income-producing asset. It often represents the largest portion of their net worth. It may include real estate, equipment, intellectual property, customer relationships, goodwill, and years of accumulated knowledge. Yet many owners have never clearly communicated what should happen to these assets if they are no longer present to oversee them.

One of the most important questions every business owner should answer is simple: Who will run the business?

Ownership and management are not always the same thing. A son or daughter may inherit ownership but have little interest in operating the company. A key employee may have the ability to lead but no ownership stake. A spouse may inherit significant value but lack familiarity with daily operations. Without clear planning, these situations can create confusion, conflict, and financial hardship at precisely the time when families are already facing emotional challenges.

Another critical question is: Who will own the business? Many business owners assume these issues will work themselves out naturally. History suggests otherwise. Family disagreements, unclear expectations, and conflicting visions have destroyed many successful companies after the founder’s departure.

For businesses with multiple owners, buy-sell agreements become especially important. These agreements establish how ownership interests will be valued, who may purchase ownership interests, and how those transactions will be funded. Without a clear buy-sell agreement, surviving partners and family members may find themselves navigating difficult negotiations during an already stressful period.

Business valuation also plays a vital role in effective estate planning. As a Certified Valuation Analyst, I often meet business owners who have a general sense of what they believe their company is worth but have never completed a formal valuation. Yet it is difficult for those left behind, to transfer, gift, sell, or protect an asset when its value is ambiguous.

A professional business valuation can provide clarity for: Succession planning, Buy-sell agreements, Ownership transitions, and Estate and gift tax reporting

Understanding the value of a business allows owners to make informed decisions rather than assumptions.

Warren Buffett once said, “Someone is sitting in the shade today because someone planted a tree a long time ago.” Estate planning is one of the most important trees a business owner can plant. The benefits may not be fully realized today, but future generations will experience the shade. Many business owners also underestimate the importance of organization.

If something happened tomorrow, could your family quickly locate: Your will and trust documents? Partnership agreements? Insurance policies? Tax returns? Banking information? Business records?

Often the most valuable gift is appropriate preparation for the future. A well-organized estate plan can significantly reduce stress and uncertainty for loved ones during difficult circumstances.

Of course, effective estate planning extends beyond legal documents. It also includes preparing people. Do key employees understand their responsibilities? Have family members been informed of the plan? Are successor leaders being developed? Are expectations clearly communicated?

Leadership succession should never begin after a transition occurs. It should begin years before. Business owners often spend their careers helping employees, customers, and organizations become their best. Estate planning is an opportunity to ensure that the fruits of those efforts continue long after they are gone.

At its core, estate planning is not an exercise in pessimism. It is an exercise in stewardship. It reflects a commitment to family. It demonstrates responsibility toward employees. It protects customers and business relationships. It preserves opportunities for future generations.

Most importantly, it allows business owners to be more faithful stewards of the resources entrusted to them. The reality is that every business will eventually experience a transition. The only uncertainty is whether that transition will be planned or unplanned.

The question is whether you will be prepared. Your family, your employees, and your legacy deserve nothing less.

Preface: “The estimated average amount changes monthly. For example, the estimated average monthly Social Security retirement benefit for January 2026 is $2,071.”– https://www.ssa.gov/faqs/en/questions/KA-01903.html

Social Security – Claiming Retirement Benefits

The following is the second in a series of blog posts on the subject of Social Security. The first installment, which can be found here:

• • • Reviewed the history of the Social Security program
    • Listed the different types of Social Security benefits

This second installment will discuss:

• • • When you can claim Social Security retirement benefits
    • The amount of your Social Security retirement benefits
    • Working while receiving Social Security retirement benefits

Future posts in this series will address:

• • • Claiming survivor and family member benefits
    • How earned income is taxed to fund Social Security
    • How Social Security benefits are taxed
    • Estimating Social Security’s returns on investment

Social Security Credits

To claim Social Security retirement benefits, you must have accumulated at least 40 Social Security “credits”. This really just means the Social Security Administration (SSA) wants to make sure that you worked for a non-trivial amount of pay for at least ten years. The credits are counted as follows:

• • • Anyone born in 1929 or later needs 40 credits to be eligible for retirement benefits.
    • A maximum of four credits can be accumulated per year.
    • In 2026, you receive 1 credit for each $1,890 of earnings, up to the maximum of 4.
    • Each year, the dollar amount of earnings needed for a credit goes up slightly.

Once you’ve reached 40 credits, you are eligible to claim benefits when you reach retirement age. There is no partial credit for less than 40 credits, nor is there any particular significance to attaining more than 40. The dollar amount of your benefits will be determined by a graduated formula that we discuss in more detail in the next section.

If you are not sure whether you have accumulated sufficient credit or you want to see what kind of monthly benefit you can expect to receive, you can find all this out by creating a free and secure account with the SSA at https://www.ssa.gov/myaccount/. You will not need to give the SSA any information about your work history. They already have it. Once you create the account, they will make this information visible to you.

The Amount of Your Security Retirement Benefits

The year in which you claim your Security retirement benefits, a monthly benefit amount is calculated based on your earnings history. The SSA then pays you monthly benefits for the rest of your life, starting with this amount and adjusting it each year for inflation.

The monthly benefit amount is calculated thus:

• • 1. Earnings from all the years you worked are converted into present-year dollars.
    2. The 35 highest-earning years are selected. Income above the annual threshold is ignored. For 2026, the threshold is $184,500.
    3. A monthly average is computed.
    4. The monthly average is divided into three segments. For 2026, these segments occur at $1,286 and $7,749. These are known as “bend points”.
    5. Income up to the first bend point is multiplied by 90%, above the first and up to the second by 32%, and above that by 15%.
    6. Add these three discounted amounts together, and that is the baseline for your monthly benefit.

This baseline amount may be further modified depending on how old you are when you claim, as follows:

• • • Current law defines full retirement age (FRA) for people born in 1960 and after as 67. If you claim retirement benefits at FRA, you receive 100% of the benefit as calculated.
    • If you claim retirement benefits before reaching FRA, your benefit is a reduced percentage. The reduction is 6.67% per year for each of the first three years and 5% per year for the remaining two years. The earliest age for claiming retirement benefits is 62, in which case you will only receive 70% of the amount.
    • If you wait past FRA to claim the benefits, they are increased above 100% by 8% a year up to a maximum of 124% if you claim at age 70. There is no additional benefit to waiting beyond age 70 to claim.

So, if you wait until you are past age 62 to claim retirement benefits, you will have greater benefits going forward. However, you will miss out on the benefits you didn’t receive during the years you were waiting.

The benefits you get the year you claim are then adjusted for inflation each year.

Working While Receiving Social Security Retirement Benefits

If you continue to work and earn income after you begin receiving Social Security retirement benefits, your retirement benefits may be reduced. For this purpose, “earned income” includes wages and self-employment income. It does not include passive or investment income, or income from annuities, pensions, IRAs, or other retirement benefits.

If you are younger than FRA, you are subject to a limit above which your retirement benefits will be reduced. For 2026, that limit is $24,480. If your earned income for the year is within the limit, your Social Security retirement benefits will not be reduced. Every dollar you earn over the limit will reduce your benefit total by 50¢ for the year.

For the year in which you reach FRA, the limit is $65,160. However, the limit only applies to earnings during the months before you reach FRA. Every dollar earned above the limit reduces your benefits by 33¢ for the year.

If you are older than full retirement age (FRA), no amount of income you earn will reduce your Social Security retirement benefits.

Earned income during years you receive Social Security retirement benefits is still subject to FICA. If your earnings at this time are high enough, the SSA may recalculate and increase your baseline benefit.

In the next post we will explain who can claim survivor and family member benefits and how they are figured.

Preface: “There is a point of complexity beyond which a business is no longer manageable.” — Peter F. Drucker, Management: Tasks, Responsibilities, Practices

The Technology Labyrinth: Why Business Systems Become Hard to Navigate

Most business owners do not set out to create a complicated technology environment. It happens gradually. A company starts with accounting software, adds payroll, implements a customer relationship management system, adopts a project management platform, integrates an e-commerce solution, and then purchases specialized applications to solve specific operational challenges. Each decision makes sense at the time. However, years later, many organizations find themselves operating inside a technology labyrinth — a maze of disconnected systems, duplicate data, manual workarounds, and reports that do not always agree.

As a CPA, I have observed that most businesses do not have a technology problem. They have an integration and decision-making problem. The issue is rarely the software itself. The challenge is that information becomes scattered across multiple platforms, requiring employees to spend valuable time entering data, reconciling reports, and determining which numbers are accurate. What begins as a collection of helpful tools can eventually become a maze that makes it harder for leadership to see the business clearly.

The true cost of a fragmented technology stack extends far beyond monthly software subscriptions. Employees spend hours manually transferring information between systems. Accounting departments perform reconciliations that should occur automatically. Managers receive conflicting reports from different departments and must spend time validating data before making decisions. What appears to be a technology issue often becomes a productivity issue, a reporting issue, and ultimately a profitability issue.

Many businesses eventually recognize they are stuck in this labyrinth and decide that a software migration or enterprise resource planning implementation will provide the way out. Yet research consistently shows that software migrations are among the most difficult business initiatives to execute successfully. Industry studies have found that many ERP implementations exceed their original budgets or timelines, while Gartner has reported that many organizations fail to achieve the business objectives that justified the project in the first place. These statistics are revealing because they demonstrate that software alone is rarely the solution. Success depends on clear business processes, reliable data, employee adoption, and careful planning before the migration begins.

Accounting departments are often the first to recognize when the technology labyrinth is becoming difficult to navigate. The accounting team sits at the intersection of nearly every business process. Sales transactions must ultimately be recorded in the financial system. Payroll information must be reconciled. Inventory activity must align with accounting records. When systems fail to communicate effectively, accounting becomes the department responsible for finding the path through the maze and correcting the discrepancies. Over time, finance professionals spend less time analyzing business performance and more time untangling data issues created elsewhere in the organization.

Business owners frequently ask what software they should purchase next. In many cases, that is the wrong question. A more productive question is whether existing systems are working together effectively. If employees rely heavily on spreadsheets to move information between applications, if customer data exists in multiple locations, or if monthly financial reporting requires extensive manual intervention, the organization may not need another application. It may need a clearer map of the systems it already owns.

The most successful businesses are not necessarily those with the most sophisticated technology. They are often the organizations that have created a reliable flow of information throughout the company. Their systems support decision-making rather than complicate it. Management can access timely and accurate information, employees spend less time performing repetitive administrative tasks, and accounting teams can focus on providing insights rather than correcting errors.

Technology should create clarity, not confusion. Before investing in another application or undertaking a major software migration, business owners should take time to evaluate how information moves through their organization. The greatest challenge may not be finding better software. It may be understanding the maze that has quietly formed over years of well-intentioned decisions.

A technology labyrinth rarely appears overnight. It is built one software decision at a time. The good news is that businesses can find their way through with unified processes, improving integrations, and aligning technology decisions with financial reporting and workflow needs. In today’s business world, navigating the technology labyrinth may be one of the most important steps a company can take toward better decision-making and sustainable management of growth. 

Preface: “The four most dangerous words in investing are: ‘This time it’s different.'” — Sir John Templeton

The Interest Rate Myth: Why the Federal Reserve Doesn’t Control All Interest Rates

When the Federal Reserve announces that it is raising or lowering interest rates, the financial news media immediately springs into action. Headlines proclaim that borrowing costs are rising, mortgages will become more expensive, or businesses will finally get some relief. Most people walk away believing that the Federal Reserve controls all interest rates.

The reality is far more interesting.

While the Federal Reserve has tremendous influence over short-term interest rates, it does not directly control long-term rates. In fact, some of the most important borrowing costs affecting businesses and families are determined not by the Federal Reserve, but by millions of investors participating in the global bond market. Understanding the difference between short-term and long-term interest rates can help business owners make better financing decisions, better investment decisions, and better long-term strategic decisions.

The Federal Reserve primarily controls short-term interest rates through its management of the Federal Funds Rate. This is the rate banks charge one another for overnight lending. Although most consumers never borrow at the Federal Funds Rate, it serves as the foundation for many short-term borrowing costs throughout the economy. When the Fed raises rates, banks typically increase the Prime Rate, lines of credit become more expensive, variable-rate loans rise, and borrowing costs increase relatively quickly. Likewise, when the Fed lowers rates, businesses and consumers often experience relief through lower short-term borrowing costs.

This is where many people assume the story ends. However, long-term interest rates operate under a different set of rules.

Long-term rates, such as mortgage rates, commercial real estate loans, and long-term Treasury bonds, are largely determined by the bond market. The bond market is essentially a giant forecasting machine. Every day, investors around the world make decisions based on what they believe inflation, economic growth, government spending, and future Federal Reserve policy will look like years into the future.

In other words, while the Federal Reserve controls today’s short-term rates, the bond market places its bets on tomorrow.

This distinction creates one of the most fascinating dynamics in economics. Sometimes the Federal Reserve and the bond market agree. At other times, they strongly disagree.

For example, many people assume that when the Federal Reserve lowers rates, mortgage rates should immediately fall. Yet history shows that this is not always the case. There have been periods when the Federal Reserve was cutting short-term rates while mortgage rates remained stubbornly high—or even increased.

Why would that happen?

Imagine investors believe inflation will remain elevated for years. Even if the Federal Reserve cuts rates today, investors may still demand higher returns for lending money over the next ten or thirty years. After all, inflation erodes purchasing power. If investors expect future inflation, they will insist on higher long-term rates to compensate for that risk.

The opposite can also occur. The Federal Reserve may be raising short-term rates aggressively while long-term rates remain stable or even decline. This often happens when investors believe economic growth will slow in the future or that inflation will eventually come under control. In these situations, money often flows into long-term bonds, pushing yields lower.

This relationship between short-term and long-term rates creates what economists call the yield curve. Under normal conditions, long-term rates are higher than short-term rates. Investors demand additional compensation for committing their money for longer periods and accepting greater uncertainty.

Occasionally, however, the yield curve inverts. This means short-term rates become higher than long-term rates. Historically, inverted yield curves have been one of the most reliable warning signs of an economic slowdown or recession. Investors are effectively saying, “We believe today’s rates are unsustainable and will be lower in the future.”

For business owners, these distinctions matter enormously.

Companies with variable-rate debt, such as lines of credit or adjustable-rate loans, are particularly sensitive to Federal Reserve actions. When the Fed raises rates, interest expense often increases almost immediately. Businesses carrying significant variable-rate debt can experience substantial pressure on cash flow and profitability.

Companies with long-term fixed-rate debt face a different challenge. While they may be protected from short-term rate increases, they are exposed to refinancing risk. If their debt matures during a period of elevated long-term rates, refinancing costs can increase dramatically. This can affect everything from commercial real estate projects to equipment purchases and business expansion plans.

The challenge becomes even greater when the Federal Reserve and the bond market send conflicting signals. A business owner may hear that the Fed is lowering rates and assume financing conditions will improve, only to discover that long-term borrowing costs remain elevated because bond investors are worried about inflation, government deficits, or future economic uncertainty.

This is why prudent financial management requires looking beyond Federal Reserve announcements. Business leaders should pay attention to both short-term and long-term interest rate trends. They should understand how their debt is structured and consider whether their borrowing aligns with the useful life of the asset being financed. Financing a long-term asset with short-term debt may seem attractive initially, but it can create significant risk when interest rates rise.

Warren Buffett once observed, “Interest rates are to asset prices what gravity is to the apple.” His point was simple but profound. Interest rates influence nearly every financial decision in the economy. They affect the value of businesses, real estate, stocks, bonds, and future cash flows.

Peter Drucker offered another timeless insight when he said, “The greatest danger in times of turbulence is not the turbulence—it is to act with yesterday’s logic.” Business owners who assume the Federal Reserve controls all interest rates may be using yesterday’s logic. Today’s financial environment requires a deeper understanding of how markets actually function.

The most successful business leaders recognize that interest rates are not merely numbers on a screen. They are signals. They reflect expectations about inflation, growth, risk, and confidence in the future. Understanding those signals can help business owners make wiser decisions about borrowing, investing, hiring, and expansion.

The next time you hear that the Federal Reserve has raised or lowered rates, remember that only part of the story has been told. The Fed may control the short end of the interest-rate spectrum, but the bond market controls the long end. The real challenge—and opportunity—comes from understanding the conversation taking place between the two.

Those who understand that conversation will be far better positioned to navigate whatever economic environment lies ahead.

Preface “In the United States, a program that deals only with the poor will end up being a poor program.” – Wilbur J. Cohen

Social Security – An Introduction

The following is the first in a series of blog posts on Social Security. This first installment:

• • • Reviews the history of the Social Security program
    • Lists the different types of Social Security benefits

Future posts in this series will address:

• • • Claiming retirement benefits
    • Claiming survivor and family member benefits
    • How earned income is taxed to fund Social Security
    • How Social Security benefits are taxed
    • Estimating Social Security’s returns on investment

A Brief History of Social Security in the United States

Social Security was established with the Social Security Act of 1935. Its goal is to provide government insurance of income to the elderly and disabled and their dependents. It is administered by the Social Security Administration (SSA), an independent agency of the federal government created by the same 1935 act. It is the most significant and enduing of president Franklin Roosevelt’s New Deal programs.

The Social Security program was modeled on an earlier program designed to provide benefits for railroad workers under the Railroad Retirement Act of 1934. A year later, the federal government decided to create a similar system that would be mandatory on all types of employers.

When we speak of receiving “Social Security”, we are usually thinking of what is technically Old Age, Survivors, and Disability Insurance (OASDI). OASDI is funded by a special kind of income tax called Federal Insurance Contributions Act (FICA) tax.

The original Social Security Act established FICA tax so that Social Security would not be seen as government assistance for the indigent, but instead as an insurance program for all. Seen this way, FICA is not really a tax, but a mandatory insurance premium. This unusual feature of what would otherwise be just another government spending program continues to play a role in all discussion of possible changes to Social Security as it approaches the end of its first century of existence.

The Social Security Amendments of 1965 created Medicare, a government health insurance program run along similar lines to Social Security. Medicare is administered by the Department of Health and Human Services. These same 1965 amendments also expanded FICA taxes to include funding for Medicare.

By 1972, it was clear that FICA was not sufficient to fund Social Security needs. The Social Security Amendments of 1972 established a second program under SSA called Supplemental Security Income (SSI). Unlike OASDI, SSI is funded by U.S. Treasury general funds. These are the same general funds that fund other government programs. There is no pretense that SSI is a form of insurance.

A Brief Explanation of How FICA Works

At first, Social Security applied only to employees and not to the self-employed. The 1935 act established payroll withholding for the first time in history. This was done so FICA could be deducted from employees’ wages. The act also required, for the first time in history, that employers report and remit the withholding on a quarterly basis. Both the withholding and quarterly filing requirements for employers remain in place today and have expanded beyond their original purposes.

Within a decade, the federal government realized that with these new powers, they could collect and track withholding on regular income tax in addition to FICA. Income tax withholding and employers’ obligation to include it with quarterly payroll returns were codified in law with the Current Tax Payment Act of 1943.

Within another decade, mandatory participation in Social Security was extended to the self-employed with the Self-Employment Contributions Act of 1954. Since the self-employed have no wages to withhold, this act created a new kind of tax just for them. It was originally called SECA tax after the name of the act. It is now usually just called “self-employment tax”. This tax on the self-employed is figured in the same way as FICA and all FICA rate increases and other modifications over the years apply to the self-employed as well.

FICA was originally set at 2% but is now 15.3% of wages and self-employed income. Of this, 12.4% is due to Social Security and 2.9% to Medicare. The Affordable Care Act of 2010 (ACA or “Obamacare”) increased the Medicare portion to 3.8% on income above $200,000 ($250,000 for married filing jointly).

In a later post, we will discuss the nuts and bolts of FICA in more detail.

In general, FICA is a parallel income tax system collected by the IRS using the same processes as regular income tax (withholding, estimated tax payments, etc.). This is unusual in that the federal government has many, many different programs, probably more than anyone could ever count, that all require funding, and yet none besides OASDI and Medicare have their own special income tax that is collected and tracked separately.

We often hear in the news that Social Security will run out of funds by a certain year. This may well be true. Yet we never hear this said about the Air Force, the Small Business Administration, the Environmental Protection Agency, the Smithsonian, the National Endowment for the Arts, SNAP, NASA, etc., etc. Are all these other programs perfectly solvent? Hardly. There is just no pretense that they are to be self-funded, each through a special tax designed specifically for that program.

If you look at your W-2, you will see boxes for Social Security and Medicare deductions. You will not see a Navy deduction, an FBI deduction, a National Park Service deduction, etc. If any of those agencies need more money, the federal government will simply put itself further into debt to give it to them. Are we to believe that if Social Security needs more money, the government will just shrug and say: Sorry, dear senior citizens, you’re on your own…?

On the other hand, maybe it would be a good idea if every government program had to be funded through its own special line item income tax and could expect no additional funding. It would certainly make very transparent to taxpayers how much out of each paycheck was going to what program. At present, 15.3% is going to OASDI and Medicare, and apparently even that is not enough to keep them running for much longer.

Types of Social Security Benefits

There are two basic types of OASDI benefits:

• • • Disability (DI) –  A person of any income level found disabled by the SSA can claim benefits.
    • Retirement (OASI) – This is what we usually mean when we think of “Social Security”.

Benefits can also be claimed by:

• • • Survivors – This is the “S” in “OASI”. Surviving spouses and dependents of deceased OASI recipients can continue to claim the deceased recipient’s benefits.
    • Family members –family members of living OASI and DI recipients can claim benefits. Family member benefits are computed as a percentage of the primary recipient’s benefits.

The next post will explain who can claim retirement benefits and how they are figured.

Preface: “Myth is the mountain whence all the different streams arise which become truths down here in the valley.” – C.S. Lewis

Claiming Dependents: Myths and Facts 

Myth: Once my kid turns 18 (or some other age), I can’t claim him anymore.

Fact: You can only claim the full amount of child tax credit ($2,200 in 2025) for qualifying children who were under 17 at the end of the calendar year. However, you can still claim the lesser amount of $500 for qualifying children who were under 19.

If your child was a full-time student, you can continue claiming him until the year he turns 24.

If your child is permanently and totally disabled, there is no age limit. How do you know if your child qualifies as permanently and totally disabled? Ask a doctor.

A child who meets the requirements of a qualifying relative can still be claimed as a dependent regardless of age. The credit for a qualifying relative is $500.

Myth: If you are married and are the primary earner, you can claim your spouse as a dependent.

Fact: If you are married at the end of the calendar year, you must choose between married filing jointly (MFJ) and married filing separately (MFS) for that year. The MFJ status offers lower tax rates and a higher standard deduction. That is a tax break available to married couples. You cannot claim your spouse as a dependent regardless of who earns the income.

Myth: If my child earned more than $5,000 (or some other amount), I can’t claim him anymore.

Fact: There is no dollar threshold on the income of children who can be claimed as dependents. The support requirement for qualifying children says that a qualifying child must not have provided more than half of his own support. It doesn’t even say that you must have provided more than half, just that the child can’t have provided more than half. And it says nothing of any dollar limit.

What you are probably thinking of is the gross income requirement that applies to qualifying relatives. This was $5,200 in 2025. There is no gross income requirement for qualifying children.

Myth: If my kid had a job and I am claiming him as a dependent, then I report his income on my tax return.

Fact: If your child earned enough to meet filing requirements, he must file his own return and pay his own tax. If he does not meet filing requirements, then his income is tax-free.

If your child had withholding through his paycheck, he may want to file even when not required to in order to claim a refund.

If you are claiming a child as a dependent and that child is filing a tax return, the child’s return must check the box that says “Someone can claim you as a dependent”. If the boxes are mismatched, processing of the returns may be delayed.

In the event that your child had more than $2,700 in unearned income (bank interest, investment income, etc.), then the amount of unearned income above the limit will be taxed at your tax rate. This is known as the “kiddie tax”. It is intended to stop rich parents from avoiding tax by shifting their investments to their children.

Myth: If two people try to claim the same child in the same year, the one with court-ordered legal custody of the child gets the credit.

Fact: Assuming both parties to the dispute meet all requirements for claiming the child, the tie-breaker rules favor the claimant as follows:

1. 1. 1. The parents, if they file a joint return;
      2. The parent, if only one of the persons is the child’s parent;
      3. The parent with whom the child lived the longest during the tax year, if two of the persons are the child’s parent and they do not file a joint return together;
      4. The parent with the highest AGI if the child lived with each parent for the same amount of time during the tax years, and they do not file a joint return together;
      5. The person with the highest AGI, if no parent can claim the child as a qualifying child.

Court-ordered custody doesn’t enter into it.