Retired Elevator Mechanic With a $6,100-a-Month Union Pension and $700,000 in an Annuity Fund Will Be Slammed by Three Layers of Tax He Never Saw in a Paycheck

A 67-year-old retired elevator mechanic in the New York area is a member of the International Union of Elevator Constructors (IUEC). He collects a union pension of $73,200 a year and has $700,000 in the union annuity fund. At 67, he receives $3,200 a month in Social Security. He looks set, yet three tax layers stack on top of each other, and none of them ever showed up on his pay stubs.

Plenty of people in the building trades end up in this spot. Elevator constructors usually retire with two separate benefits: the National Elevator Industry Pension and the Elevator Constructors Annuity and 401(k) Retirement Plan, which NEI Benefit Plans describes as designed to supplement the pension. The name is misleading, and the annuity fund is a defined-contribution account, much like a 401(k). Every dollar he takes out is taxable income.

Layer One: A Pension Taxed Like Wages, With No Shelter Left

The pension counts as ordinary income. No FICA comes out of it, and he has no 401(k) deferral left to reduce it. New York gives some relief. Anyone 59½ or older can exclude up to $20,000 of qualified pension and annuity income, and New York subtracts taxable Social Security from that amount. His pension alone uses up the whole $20,000. New York taxes every dollar he pulls from the annuity fund.

Layer Two: 85% of His Social Security Gets Taxed

Federal tax on Social Security depends on a number called provisional income: your other income plus half your benefit. For single filers, the thresholds are $25,000 and $34,000, and they have never been adjusted for inflation. His provisional income is $92,400, well past both. That makes $32,640 of his $38,400 in annual benefits taxable, which is the 85% maximum.

His adjusted gross income is $105,840, so he gets the $16,100 standard deduction plus the new senior deduction, which starts at $6,000 and shrinks by 6% of income above $75,000. After those, his federal tax is roughly $13,500, a little less once the extra age-65 standard deduction is applied. About $7,200 of that is 22% tax on Social Security benefits he spent decades paying into.

Layer Three: A $3,160 Cushion Before Medicare Costs Jump

Medicare charges higher-income retirees an extra premium called IRMAA (income-related monthly adjustment amount). In 2026, a single filer with modified adjusted gross income (MAGI) up to $109,000 pays the standard $202.90 a month for Part B. One dollar above that line raises Part B to $284.10 and adds a $14.50 monthly Part D surcharge. That works out to about $1,148 a year. Medicare sets these charges using your tax return from two years earlier.

He has just $3,160 of room. A modest withdrawal from the annuity fund puts him over. The 3.6% COLA for 2027 adds roughly $1,175 to his taxable benefits and further cuts into that room. Required minimum distributions (RMDs) begin at age 73. On this balance, they come to about $26,000 a year, pushing him over the line with no say in the matter. IRMAA is only one of several income-triggered surcharges that quietly reshape a retirement budget, and we cataloged the rest in a free Medicare guide here.

Reverse the Order: Spend the Fund First, Delay Social Security

If he hasn’t claimed Social Security yet, one strategy for people in his position is to flip the usual sequence. He waits until 70 to claim and lives on the annuity fund in the meantime. With only the pension counting toward income, he has $35,800 of room under the IRMAA line each year, and that income stays in the 22% bracket, which runs up to $105,700 of taxable income. Each year he waits, he raises his monthly check for life. Each dollar he spends from the fund now also shrinks his future RMDs.

The tradeoff: he draws down liquid savings first, and if he dies early, the larger check never makes up for the years he skipped. For a single retiree in reasonable health, a larger inflation-adjusted check offers stronger protection against outliving his money.

Already Claimed? Fill the Gap Each Year Until 73

If benefits have already started, the plan is narrower. From 67 through 72, he should keep withdrawals plus small Roth conversions just under the IRMAA line each year. Converted dollars are taxed at 22% now, reduce the balance that drives future RMDs, and don’t count toward MAGI for qualified Roth withdrawals later.

Your Move Before December 31

Start by checking your MAGI on recent returns, because it sets your Medicare premiums two years later. Then pick this year’s withdrawal or conversion amount with the IRMAA line in mind. The most common mistake is pulling a lump sum from the annuity fund for a roof or a car. That one withdrawal can cost a full year of surcharges, plus income tax.

A fee-only planner is worth paying in this situation for one specific reason. The Social Security claiming decision is hard to undo, and you have to weigh it against six years of IRMAA thresholds, Roth conversions, and RMDs. Getting that sequence wrong costs real money every year.

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