- - 401(k) or Social Security or pension? This critical decision sequence makes the difference between financial health and disaster. Get it right in 2026

Vishesh RaisinghaniDecember 28, 2025 at 1:00 AM

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For most people, Social Security is the linchpin of their retirement. According to a 2024 survey by The Senior Citizens League, benefits from the government-run program account for more than half of total income for 67% of seniors. (1)

However, if you’re part of the one-third of seniors with sizable income sources beyond Social Security — perhaps a 401(k) plan or a traditional corporate pension — your biggest challenge in retirement is going to be how to minimize your tax burden.

Without a robust plan, you risk overpaying taxes on all your various income sources and could even boost the risk of outliving your fortune.

To mitigate this risk, clarify your top retirement priorities and create a plan to tap into various sources sequentially to minimize the costs.

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Clarify your retirement priorities

Before you sequence your income sources, it’s important to fully clarify what your priorities in retirement are.

For instance, 20% of retirees said creating an inheritance or financial legacy was a top priority, according to a 2023 report by the TransAmerica Center for Retirement Studies. (2) If that is your priority as well, you need to sequence your income from various sources in a way that maximizes the size of your savings for as long as possible. That could mean less income upfront.

On the other hand, some retirees want to maximize income and lifestyle expenses while they’re still young and healthy. Your late 50s and early 60s could be your so-called “go-go years” where you can enjoy traveling and indulging in hobbies that demand a certain level of fitness.

Retirees surveyed by TransAmerica were more worried about their declining health that requires long-term care (35%) than outliving their savings and investments (32%).

If this is your top priority, you may need to sequence your income in a way that gives you more cash upfront, while also managing lower tax liabilities.

Once you’ve firmly established your priorities, you can work with a financial advisor to develop a comprehensive strategy for claiming retirement income from different sources.

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Sequence your retirement income

If your retirement plan includes income not only from Social Security but also tax-advantaged accounts like traditional IRAs and 401(k) plans as well as a defined benefit pension, you’re in a unique position.

According to the Bureau of Labor Statistics, only 14% of private industry workers have access to a traditional pension. (3) Although you’re more likely to enjoy this special perk if you’re older or a government employee, most workers do not have the luxury of this additional income source in retirement.

Unfortunately, if you have this guaranteed source of income it could easily become a guaranteed source of tax liabilities if you don’t plan withdrawals from your taxable accounts and Social Security appropriately.

With this in mind, you could structure the other two sources of income based on your priorities. For instance, you could decide to retire early and draw down your 401(k) through tax gain harvesting if your priority is to enjoy the go-go-years of your life. This reduces the amount of required minimum distributions you must take at age 73 and beyond.

The 401(k)-pension-Social Security sequence should allow you to fully enjoy your prime retirement years while minimizing taxes later in life when you rely on income sources that you can’t control.

On the other hand, if your top priority is to maximize the size of your estate, you could take your traditional pension as early as you become eligible.

Depending on your situation, this may put you in a lower tax bracket, which enables you to strategically convert your 401(k) and IRA balances into Roth IRAs. You can also delay Social Security claims to extend this golden window of Roth conversions.

This pension-first sequence should enable you to keep your money in appreciating assets as long as possible to enjoy sizable gains that can be passed on to your loved ones.

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The bottom line

Your sequence of withdrawals depends on your priorities and lifestyle in retirement. When you have multiple sources of retirement income, there’s no right answer about which one should be prioritized.

But the wrong answer is to make these decisions in isolation. Each decision impacts the rest of your income sources and total tax burden. So consider them all part of the same ecosystem and plan withdrawals strategically.

Article sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

The Senior Citizens League (1); TransAmerica Center for Retirement Studies (2); U.S. Bureau of Labor Statistics (3).

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

Original Article on Source

Source: “AOL Money”