Why Income Sequencing Matters

Retirement income rarely comes from a single source. A typical retiree might receive Social Security benefits, a pension payment, and withdrawals from a traditional IRA or 401(k)—all in the same year. While each stream functions independently, they interact in ways that directly affect your tax bill, Medicare premiums, and long-term financial security.

For a grounded overview of what each source involves, see our primer on Social Security, pensions, and accounts. Understanding each piece is the starting point for coordinating them well.

The central concept here is income sequencing: deciding which source to draw from first, and when to let other sources continue growing. Done thoughtfully, sequencing can lower the portion of Social Security subject to federal tax, reduce the income used to calculate Medicare Part B and D premiums (known as IRMAA surcharges), and preserve tax-advantaged growth longer.

“The goal isn't just to have enough money at retirement—it's to make sure the money you have works in the right order, from the right accounts, at the right time.”

— William Bernstein, Financial theorist and author on retirement income strategy

Best Practices for Coordinating Your Income Streams

The following approaches reflect widely recognized principles in retirement income planning. They are general in nature and not personalized financial advice—your own situation may call for different decisions. A licensed financial adviser or tax professional can help you apply these ideas to your specific circumstances.

1

Delay Social Security if your other income sources can sustain you in early retirement.

Social Security benefits increase by approximately 8% for each year you delay past your full retirement age, up to age 70. For retirees with pension or savings income to bridge the gap, delaying can substantially raise lifetime benefits—particularly important if you have longevity in your family history.

Example: A retiree at age 62 draws from a traditional IRA for five years, allowing Social Security to grow before claiming at 67, resulting in a meaningfully higher monthly benefit.
2

Draw down taxable accounts before tax-deferred accounts in lower-income years.

During years when your income is relatively low—such as before Social Security begins—withdrawing from taxable brokerage accounts rather than traditional IRAs can preserve the tax-deferred growth of those accounts. This approach may also help manage long-term capital gains rates, which are often lower than ordinary income rates.

Example: A retiree uses proceeds from a taxable brokerage account to cover living expenses in the first three years of retirement, leaving the IRA to compound until Required Minimum Distributions begin.
3

Plan for Required Minimum Distributions (RMDs) well before they begin.

The IRS requires withdrawals from traditional IRAs and most employer-sponsored plans starting at age 73. If you haven't planned for these, they can arrive unexpectedly alongside Social Security and pension income, pushing you into a higher tax bracket or triggering Medicare premium surcharges.

Example: A retiree in their late 60s conducts a Roth conversion over several years to reduce the traditional IRA balance subject to future RMDs, smoothing out taxable income over time.
4

Monitor your combined income each year to avoid Medicare IRMAA thresholds.

Medicare Part B and Part D premiums increase for beneficiaries whose modified adjusted gross income exceeds certain thresholds. These surcharges are calculated two years in arrears, so income spikes—from a large IRA withdrawal or a one-time sale—can affect premiums in future years.

Example: A retiree needing a large distribution delays it from December into January to avoid crossing an IRMAA threshold in a year when other income is unusually high.
5

Understand how pension income interacts with Social Security before claiming either.

Depending on your work history, certain pension types—particularly those from government employment not covered by Social Security—may reduce your Social Security benefit through the Windfall Elimination Provision (WEP) or Government Pension Offset (GPO). Knowing this in advance prevents surprises at claim time.

Example: A former state employee discovers that her government pension triggers the WEP, reducing her Social Security benefit, and adjusts her overall income plan accordingly before retiring.
6

Review beneficiary designations and survivor benefit elections for each income source.

Pension survivor benefits and IRA beneficiary designations determine what income your spouse or heirs receive after your death. These elections are often irrevocable once made, and mismatched or outdated designations can undermine an otherwise sound income plan.

Example: A retiree elects a joint-and-survivor pension option at a slightly lower monthly amount, ensuring continued income for a spouse who has limited independent retirement savings.

Tax Considerations Across Multiple Sources

One of the most consequential—and frequently overlooked—dimensions of multi-stream retirement income is how each source is taxed, and how they interact with one another.

Up to 85%

Of Social Security benefits potentially subject to federal income tax

According to the IRS, the taxable portion of Social Security depends on your combined income, which includes adjusted gross income, nontaxable interest, and half of your Social Security benefits.

Age 73

When Required Minimum Distributions must begin for most retirement accounts

The SECURE 2.0 Act raised the RMD starting age to 73 for individuals who turn 72 after December 31, 2022, per IRS guidance.

Traditional IRA and 401(k) withdrawals are taxed as ordinary income. Pension payments are also generally taxable at the federal level, though state treatment varies considerably. Social Security benefits may be up to 85% taxable depending on your combined income. Stacking all three in a single year can push you into a higher bracket than any single source alone would suggest.

For a closer look at how pension income specifically fits into the tax picture, see our article on pension income and taxes. And if you're exploring income sources beyond these core three, our overview of income options beyond Social Security covers annuities, part-time work, and more.

Consider Roth Conversions in Lower-Income Years

If there are years in early retirement when your income is relatively low—perhaps before Social Security begins—converting a portion of a traditional IRA to a Roth IRA may make sense. Roth withdrawals in retirement are generally tax-free and are not subject to RMDs. This is a complex decision with significant tax implications; consult a qualified tax adviser to evaluate whether it fits your situation.

Getting Started: Quick Actions You Can Take Now

Coordinating retirement income doesn't require a complete financial overhaul. Several targeted steps can meaningfully improve how your streams interact.

high Log in to ssa.gov and review your Social Security earnings record and projected benefit at different claiming ages.
high Calculate your estimated RMD for age 73 using the IRS Uniform Lifetime Table and note how it would interact with your other expected income.
medium Check whether your modified adjusted gross income is near an IRMAA threshold and assess whether a planned withdrawal could push you over.
medium Confirm that all IRA and pension beneficiary designations reflect your current wishes—update if needed.
medium Ask your plan administrator whether your pension is subject to the Windfall Elimination Provision or Government Pension Offset.

For a structured way to assess your overall readiness, use our retirement income readiness checklist to confirm your elections, account rules, and tax situation are aligned. You can also explore the full context in our end-to-end retirement income guide.

This article is for general informational and educational purposes only and does not constitute personalized financial, tax, or legal advice. Consult a qualified financial adviser, tax professional, or attorney regarding decisions specific to your situation.