Verizon Pension: đź’° Big Lump Sum or Monthly Paycheck. One or the Other.
You can get one or the other, but not both.
Many Verizon retirees face one of the most important financial decisions of their retirement.
đź’° Take the lump sum:Â Receive one large payment that you can invest, manage, and use as you see fit. You gain control and flexibility over the money, along with the opportunity for it to grow. Any amount remaining at your death may be passed on to your designated beneficiaries, subject to applicable tax and inheritance rules. But you also take on the responsibility of managing withdrawals and making that money last throughout retirement.
đź“… Choose the monthly pension:Â Receive a predictable monthly payment for your lifetime, subject to the terms of the pension plan. Depending on the survivor benefit you elect, payments may also continue to your spouse after your death. In exchange, you give up access to the lump sum and the flexibility that comes with controlling those assets.
Unlike a lump sum, a monthly pension generally doesn't give you access to a large pool of money for an unexpected expense or major purchase. You'll receive your scheduled payments instead.
⚠️ And this isn't a decision you can easily change your mind about. Once your pension election becomes effective, it generally cannot be changed.
You're deciding not just how you receive your retirement benefit, but how a significant portion of your retirement income will be funded for the rest of your life.
That's why it's so important to look beyond the initial dollar amounts and understand what each option could mean for you and your spouse over the long term.
The good news:Â Your election package lists your available options and dollar amounts, so you can start with real numbers. I strongly recommend getting a copy before making any decisions.
Keep in mind that this article provides general educational information. Your pension benefits are governed by the specific terms of your employer's retirement plan, and your available options may differ from those described here.
Request a copy of your pension plan options and election package from your HR department. Those documents are the starting point for understanding exactly what you're being offered.
What are the choices?
Options depend on your particular plan. They often include:
A lump sum. One payment that may be eligible for a direct rollover to an IRA, where you can invest and manage the money.
A single-life monthly pension. Typically the highest monthly payment among the available lifetime pension options, paid for your life.
A joint and survivor pension. A monthly payment, generally smaller than the single-life option, that can continue paying your spouse after you die. The amount depends on the survivor benefit you elect.
Why does the lump sum amount change?
Lump sums are calculated using actuarial assumptions, including interest rates and life-expectancy factors.
Generally, when interest rates go up, lump sums get smaller. When rates go down, lump sums get larger.
Your plan's paperwork explains which rates, assumptions, and calculation dates apply to your particular election.
Does my spouse have to sign?
If you're married, your spouse may have important rights under federal pension law.
For plans subject to applicable ERISA requirements, choosing a benefit other than the qualified joint and survivor annuity generally requires your spouse's written consent, properly witnessed by a notary or plan representative.
Check your plan's election paperwork for the specific requirements that apply to you.
What should we compare?
This is about more than comparing one large dollar amount with a monthly check. Consider:
Income for life versus control and flexibility. How important is a predictable monthly income compared with having control over a larger pool of money?
Your spouse's financial security. What would your spouse receive if you died first?
Your other retirement income. Consider Social Security benefits available to both you and your spouse, along with other sources of income.
Your health and family history. How might your life expectancy affect the value of each option?
Leaving money to your children. Any lump sum remaining at your death may pass to your beneficiaries. Pension survivor benefits, however, depend on the payment option and plan provisions you elect. Some plans may provide additional guaranteed payments.
How is it taxed?
Monthly pension payments are generally taxable as ordinary income to the extent they represent taxable pension benefits.
A lump sum may be eligible for a direct rollover to a traditional IRA, generally deferring federal income taxes until withdrawals are taken. If the money is paid directly to you instead, different tax and withholding rules apply.
In New York, residents age 59½ and older may qualify for an annual exclusion of up to $20,000 of qualifying pension and annuity income, including eligible IRA distributions. The rules depend on your individual circumstances.
How I help Verizon retirees decide
I work with Verizon retirees at my Chittenango office.
We put your pension options, Social Security statements, and savings side by side, so you can see what each choice could mean for both of you.
Bring your election package. We'll look at the actual numbers and the tradeoffs before you make a decision.
Jessica Champion, RICP® is a fee-only fiduciary financial advisor in Chittenango, NY. Advisory services are offered through Champion Method LLC, an investment adviser registered with the State of New York.
Jessica Champion Investment Services is independent and is not affiliated with or endorsed by Verizon Communications Inc.
This article is provided for informational and educational purposes only and does not constitute individualized investment, tax, or legal advice or a recommendation to select any particular pension distribution option. Pension elections involve individual circumstances, and the availability and terms of benefits vary by plan. Consult your tax and legal professionals regarding your specific situation.
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