Verizon Pension Benefit Choices Explained | Hapanowicz & Associates

As a Verizon employee, your pension benefit plays an essential role in your retirement income planning. When deciding to retire from Verizon, one of the biggest decisions you will have to make is whether to take the lump sum or annuity payout option. While the decision between these two payout options is extremely personal, there are several factors that every Verizon employee should consider when determining which is the right choice for them. 

Think About the Pros and Cons of Each Pension Benefit Payout Option

First and foremost, you’re going to want to understand the general pros and cons of each payout option.

Annuity

Pro Con

Can be considered a “guaranteed” source of income. It’s a set dollar amount provided and guaranteed by an outside source, Verizon.

Dependability of the income stream amount. You can depend on the same payment amount at the same time each month for the remainder of your life (and potentially your spouse’s life depending on which annuity payment option you choose).

As this is an income stream from an outside source, you do not have to worry about managing any funds or investments to provide an income stream. The burden is fully on Verizon.

The income amount remains the same throughout your life. Therefore, your benefit will lose purchasing power over time due to inflation.

The security of the annuity payment is dependent on the financial health of Verizon. If Verizon was to go bankrupt, the pension benefit could be taken over by the Pension Benefit Guaranty Corporation (PBGC) and isn't guaranteed to be paid out.

The benefit ends at your death (or your survivor/spouse’s if you choose the joint and survivor option). Beyond you and your designated beneficiary, if you appoint one, there's no way to leave a legacy with this benefit to additional beneficiaries i.e., children, grandchildren, charities, etc.

You don't own this benefit. Rather than it being an asset on your balance sheet, it is considered an income source.

Lump-Sum

Pro Con

This asset is owned by you and is included on your balance sheet. You have control over how it is managed and spent and the timing/frequency of withdrawals taken. The way it is managed can be customized to your specific income needs, risk tolerance, and time horizon.

You have greater control over what role you would like this benefit to play in your financial legacy. This benefit can potentially last beyond your and your spouse’s lifetimes and can be left to children, grandchildren, charities, etc. You may choose multiple beneficiaries and customize their inheritance to what you prefer.

Because this asset belongs to you and you have control over how it is managed/invested, you have the opportunity to grow the income you take over your lifetime. This provides the opportunity to take income that will keep pace with inflation and therefore, the growing cost of living over time.

Lump-sum payouts allow rollovers to tax-qualified retirement accounts (like IRAs) at retirement. This rollover is tax-deferred, meaning you do not owe taxes on that rollover. You then have complete control over when to start distributions and how frequently you’d like to take them. This gives you more control over when you will pay taxes on the income taken from this benefit.

The burden of managing and investing this benefit is on you (with the help of your advisor if you’re working with one).

Income taken from the benefit is not a “guaranteed source of income” like the annuity payment is considered to be. The account value itself is also not guaranteed, as it is subject to the investment/management strategy implemented.

Take Inventory of All Retirement Income Sources

Next, think about all the other income sources you can expect to receive in retirement, such as:

  • Social Security—your benefit and your spouse’s
  • If your spouse has his/her own pension benefit and what the payment options are for that benefit
  • All investment accounts that you plan on taking distributions from 
  • Any cash above and beyond your emergency savings that is available for drawing from for income needs

How many of these income sources are considered “guaranteed” vs. “non-guaranteed”? The total guaranteed income sources already available to you may impact your decision between the annuity and lump-sum options. 

Factor in Inflation and Interest Rates

For Verizon retirees that choose an annuity pension benefit, it’s important to remember that there isn’t a cost of living adjustment and that benefit remains stagnant. This means that for the entirety of your life (and the life of your beneficiary if you go with the joint and survivor option), the monthly amount you’re receiving stays the same. So, as inflation rises over the years, that amount starts to lose its purchasing power.

Know the Tax Implications

Choosing an annuity option could potentially affect your tax obligations differently than choosing a lump-sum payout. With the annuity, you would get payments as if you’re receiving a paycheck from Verizon, and therefore, you’re going to owe income tax on your monthly payments without any planning flexibility. 

With the lump-sum payment, you have options. You can roll over the funds into a retirement account, which means it's tax-deferred. You only have to pay taxes if and when you decide to withdraw from that account, and you decide how much to withdraw. This way, you have more control over your tax obligations. 

Consider the Financial Legacy You Want to Leave 

What do you want your financial legacy to look like? The annuity option allows a financial legacy to be left to one beneficiary, while the lump-sum payout provides more options and flexibility when considering how you would like this benefit to be inherited. 

What’s Right for You?

The decision between the pension lump sum and annuity payout options is going to differ from one individual to the next. When you are retiring from Verizon, use the pros/cons and factors listed in this blog post and illustrate each option within your retirement income plan to see what feels best for you and your family. 

Hapanowicz & Associates isn't affiliated with Verizon, but we’ve been helping Verizon employees understand and maximize their benefits since 1999. 

Speak with a Hapanowicz & Associates Verizon retirement advisor today to find out how we can help simplify your retirement planning. 

 

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