How to Coordinate Pension Income with Social Security for Tax Efficiency

Why coordination matters

Coordinating pension income with Social Security is one of the highest‑impact moves a retiree can make to manage taxes and preserve lifetime spending power. Because up to 85% of Social Security benefits can become taxable depending on “combined income,” a relatively small change in pension withdrawals, Roth conversions, or the year you claim Social Security can change your tax bill by thousands of dollars a year. (See IRS Publication 915 and SSA guidance on claiming ages.)

This article explains how the taxation rules work, practical strategies I use in my practice, and a step‑by‑step checklist you can use to model scenarios before you act. This is educational content—not personalized tax advice. Consult a CPA or retirement planner for decisions based on your full situation.

Sources cited in this article include IRS Publication 915 (Social Security and Equivalent Railroad Retirement Benefits), IRS Form 1099‑R instructions and Publication 575 (Pension and Annuity Income), and the Social Security Administration (SSA.gov).

How Social Security and pension income are taxed (the mechanics)

• Social Security taxation uses “combined income,” defined as adjusted gross income (AGI) + nontaxable interest + 50% of Social Security benefits. Federal rules put thresholds on how much of your benefit is taxable:
• Single filers: If combined income is below $25,000, none of the Social Security is taxed. Between $25,000 and $34,000, up to 50% of benefits may be taxed. Over $34,000, up to 85% may be taxed.
• Married filing jointly: Below $32,000 none is taxed; between $32,000 and $44,000 up to 50% taxed; above $44,000 up to 85% taxed. (IRS Pub. 915)
• Most employer pensions are taxable as ordinary income when distributed unless you made after‑tax contributions to the plan. Pension payments are reported on Form 1099‑R; the taxable portion follows the form instructions and IRS Pub. 575.
• Other retirement items that affect combined income: IRA/Roth conversions, taxable brokerage withdrawals, dividends/interest, and required minimum distributions (RMDs) after age 73 (current RMD rules as of 2025) all increase combined income and can push Social Security into higher taxation buckets.

Core strategies to coordinate pension income and Social Security

Below are practical, commonly used tactics. In my 15+ years working with retirees, combining several of these lets clients smooth taxes and avoid surprises.

1. Time when you claim Social Security

• Delay claiming Social Security to increase your monthly benefit (delayed retirement credits ~8% per year between full retirement age and age 70 for those born 1943–1959 and similar rules for other birth cohorts; check SSA.gov for exact FRA and credit rules by birth year). Delaying reduces years with lower benefits and often lowers taxable combined income during your early 60s, especially if you use a pension or other income to bridge the cash flow gap.

1. Smooth pension withdrawals

• If your pension is flexible (e.g., you can take reduced periodic payments or a partial lump sum), try to spread taxable distributions to avoid pushing a single year over the key combined income thresholds. Reducing a pension payment by a few thousand dollars in a year can mean 0% vs 50% or 50% vs 85% of Social Security becomes taxable.

1. Use Roth conversions strategically

• Performing Roth conversions in years when your total taxable income is low (for example, before RMDs or before you begin Social Security) converts future distributions to tax‑free and reduces the chance Social Security becomes taxable later. You pay tax now but may avoid higher taxation of Social Security in later years.

1. Leverage Qualified Charitable Distributions (QCDs)

• If you are age 70½ or older (rules vary with RMD ages), QCDs from IRAs move money to charity and are excluded from AGI. Because combined income uses AGI, QCDs can reduce the portion of Social Security that is taxable. (See IRS guidance on QCDs.)

1. Consider pension payout and survivor options

• A single‑life pension that pays a higher amount to you but stops at death will increase early taxable income and may raise spouse’s later reliance on Social Security. A reduced survivor benefit lowers early taxable income but reduces lifetime cash flow for the survivor—this tradeoff has tax and non‑tax consequences.

1. Factor in state taxes and residency

• Some states tax Social Security and pensions differently. If you live in or plan to move to another state in retirement, run the numbers for state tax impact. See our guide on State Residency Choices to Optimize Income Tax for state‑level considerations.

1. Plan around RMDs

• Once RMDs begin, your taxable income typically rises. A common plan is to do Roth conversions in years before RMDs start and retire outside the RMD window to lower combined income at the time you claim Social Security.

1. Coordinate spousal claiming strategies

• For married couples, coordinate claiming and pension survivor options. For example, one spouse may delay Social Security to maximize a survivor benefit while the other uses pension income to cover early retirement years.

Short numerical example (illustrative)

• Couple A: Joint pension income $24,000/year + 50% of Social Security (assume $24,000 combined) = combined income = $48,000. Because combined income > $44,000, up to 85% of benefits may be taxable.
• Couple B: Same pension but performs $10,000 in Roth conversions earlier (paid tax earlier) and shifts $8,000 of pension to a deferred option, lowering current pension taxable income. Their combined income falls below $44,000, moving benefits into the 50% or 0% taxable range—reducing federal tax today and preserving more Social Security spendable income.

These numbers are illustrative. Use tax software or a CPA to model actual filing status, deductions, and state taxes.

Step‑by‑step checklist to model your coordination plan

1. Collect current statements: pension payout options (lump sum vs annuity), Form 1099‑R history, projected Social Security statements (SSA.gov), IRA balances and basis.
2. Estimate projected taxable income for a 5–10 year horizon, including expected RMDs and inflation adjustments to pensions.
3. Model several claiming ages for Social Security (62 vs FRA vs 70) and run the tax impact for each year.
4. Test Roth conversions in low‑income years and QCDs as ways to lower AGI when needed.
5. Review state tax rules and any pension source rules (some public pensions are taxed differently by state). Our Pension glossary entry explains typical pension taxation and reporting details.
6. Meet with a CPA or retirement planner to finalize a coordinated plan and implement it in stages.

Common mistakes I see

• Claiming Social Security at 62 because you need short‑term cash without modeling the long‑term tax and lifetime income tradeoffs.
• Taking the highest immediate pension payment without checking survivor options and tax consequences.
• Ignoring Roth conversion sequencing—doing large conversions in high‑income years that push Social Security into the 85% bracket.
• Overlooking state tax exposure; some states tax both pensions and Social Security.

Quick FAQ

• Will delaying Social Security always reduce taxes? Not always—delaying increases future benefits and may reduce taxable social security early, but you must fund the interim years in a tax‑efficient way.
• Can QCDs help lower taxable Social Security? Yes; QCDs reduce AGI and can therefore lower combined income used to determine Social Security taxation.
• Are pension payments always fully taxable? Usually yes, unless you contributed after‑tax dollars. The taxable portion is shown on Form 1099‑R and explained in IRS Pub. 575.

Next steps and resources

• Read the IRS guidance on Social Security taxation (IRS Publication 915) and Form 1099‑R instructions for pension reporting.
• Check your Social Security statement and claiming options at SSA.gov.
• For retirement income sequencing ideas and alternative income sources, see our article on Social Security Optimization and the general Pension glossary entry.

Professional disclaimer: This article is educational and not tax, legal, or investment advice. For recommendations tailored to your situation, consult a qualified CPA or certified retirement planner.

Author note: In my practice I regularly run multi‑year tax projections for clients weighing pension elections and Social Security claiming ages. Those models often reveal non‑intuitive moves—like modest Roth conversions or small pension‑payment adjustments—that materially reduce Social Security taxation and increase lifetime after‑tax cash flow.

Authoritative sources:

• IRS Publication 915, “Social Security and Equivalent Railroad Retirement Benefits” (irs.gov)
• IRS Publication 575, “Pension and Annuity Income” (irs.gov)
• Social Security Administration, “When to Start Receiving Retirement Benefits” (ssa.gov)