Thank you so much for tuning in with us this evening. We're excited to bring this live Q&A to you. And also a bit of a presentation as well. For those of you tuning in, you have probably received, and have been accepted, for the most recent early retirement offer from Verizon. If so, congratulations. And maybe there are some of you tuning in tonight, who haven't received the offer, or decided not to take it, but still want to learn a little more about what we consider the top considerations when you are retiring from Verizon, or retiring in general. Welcome! We're happy to be spending some time with you this evening.
Before we start, you may be wondering, who the heck are these guys? Hapanowicz & Associates is an independent investment advisory firm based in downtown Pittsburgh. We work with clients all over the country, specifically Verizon employees. We've been helping Verizon employees retire successfully from Verizon for over 20 years. That doesn't mean we're affiliated with Verizon. In fact, we are completely independent from Verizon.
We help you maximize your benefits. And with that, we're going to take some of your questions. Before we do that, we're going to cover some of our top highlights or top considerations that we encourage people to keep in mind when they're going through the retirement process. We're assuming, when we go through this information, that you are retired, or, if you accepted the offer, you will be retiring from Verizon on September 11th, or if you are planning to retire and you know when your retirement commencement date is. Let's dive into it. So, Bobby, I'm going to turn it over to you. Let's first talk about some of the timing considerations when it comes to commencing your retirement benefits from Verizon.
The timing of when you elect your benefits is very important. And in terms of your pension benefit, there's one really important date to keep in mind, that's the 10th of the month; a date you need to consider in order to get your pension commencement by the first the following month. Again, by the 10th of the month, you need your pension election and authorization forms submitted to the benefits center; they would have to receive those, they'd also have to receive word from Verizon that you have retired, that you've submitted your last day at work, etc.
For many of whom are on this call, that's September 11th. So again, October 10th is the deadline you want to keep in mind in order to get your pension benefit commenced by November. It's possible that Verizon will request a manual calculation of your pension lump sum value, if you have a September 11th date. That's something important to keep in mind because it could take a couple of days. It can actually take up to 10 business days to get that manual calculation; nothing to panic about, plenty of time to get that manual calculation, get your pension paperwork, and have that submitted before the 10th of next month.
But again, that's 10 additional business days that it could take. So, you'll want to think about that sooner than later. Make that call to the benefit center sooner than later to get that manual calculation done. Those are some of the important considerations with your pension benefit. In terms of your 401(k) rule, you want to wait two weeks after September 11th in order to call for a 401(k) rollover if you’re taking one. That’s because the Verizon 401(k) at Fidelity is a separate entity from the Verizon benefits center and a separate entity from Verizon itself. So, it takes a while for all these entities to communicate with each other. Typically, our experience is two weeks. It also takes a couple of weeks for Fidelity to process your last payroll deferral into your 401(k). So again, if you're retiring on the on the 11th, consider making that call to the 401(k) Fidelity a couple of weeks right around the 25th of this month.
Going back to that pension benefit, specifically the manual calculation, you only need a manual calculation if you're taking the lump sum. It actually might be worth asking the benefits center or asking the administrator that's assigned to you if it's worth having a manual calculation done. The reason I say that, is because Casey and I are actually working with a Verizon employee right now who, when we first called the benefits center to check in on that updated retirement commencement date of September 11th, this is what happened.
At first, the gal on the phone advised that we should be filling out that paperwork completely on our own. And then when we started talking about it a little more, she said, “Okay, I can help you do this.” That's when she came to the discovery that a manual calculation should be done.
The reason why? Because if we had done it on our own, and we just used the automated numbers as of September 11th, the lump sum value amount available to this Verizon employee was actually $7,000 less than the lump sum value amount from the original calculation! And so because of that, this associate at the benefits center did recommend a manual calculation be done just to make sure that we're not missing out on any dollars from that lump sum value.
And again, the 10th of the month is the deadline. Here we are, in early September; you have plenty of time to go ahead and take that step if you if you think it's appropriate to do so. It's never a bad idea.
Let’s move on to the second component that we wanted to discuss. Okay, so you're retired, the benefits are rolled over into your IRA, if that's what you choose to do, or you keep them in your 401(k). Suppose you want to start taking income from your accounts. Well, depending on the age at which you retire, there could be some age-related roles for that income, and potentially some tax penalties. Let's talk about those age-related roles.
The first one is that golden age of 59 and a half. At that age, you can take a distribution from the 401(k) and the IRA account without that 10% penalty. Now, if you're retiring under the age of 55, you would have a 10% penalty. That can be avoided with what's called the 72(t) distribution, where you're taking out a systematic periodic payment for the greater of five years, or 59 and a half. So, if you're at 54, you have to take out that distribution up until 59 and a half. If you take it out at 56, you'd have to take it out until age 61. Some folks use that age 55 rule to avoid the 10% penalty. Now for 401(k)s and the age 55 rule: if you're retired and separated from service when you turn 55 or later, you can take out a distribution from the 401(k) without penalty. Some folks do a mix and match between both the 72(t) rule and the 401(k).
Okay. And so, to your point, just to clarify, if you retire at age 55 or older, between age 55 or 59 and a half, you don't have to just pick the annual 401(k) distribution. You can choose to use sort of a hybrid approach of the annual 401(k) distribution and a 72(t).
Under 55, you probably only want to consider the 72(t) distribution if you want to avoid that the extra 10% penalty. Let's move on to this last component. You have your assets on the books, they’re under your ownership now, what do you do with it? How do you manage it to provide income or serve whatever purpose it is you wanted to serve? So, Bobby, why don't you talk to us about setting up a solid investment game plan.
Right. This is a really important part of implementing your retirement plan. There's so much nuance; there's so much detail that we could go into in terms of setting up your investment game plan. With that in mind, everybody has unique goals and needs in a financial retirement situation. And with that, everybody should have a customized investment game plan as well. Let’s go over some of the highlights that you should be thinking about as you begin to think about your retirement investment game plan.
The first is, what is your goal? Are you somebody who's simply transitioning from Verizon to another employer, and doesn't need to take income from your account yet? Well, then you might have more of a growth-oriented goal. And that could impact your investment game plan.
Are you more cautious? Or do you have a lower tolerance for risk? Maybe you want a capital preservation game plan. Are you actually in that retirement phase where you need income now? Well, that income plan is going to dictate a different investment game plan. So, see, these are some of the factors that could dictate what components, and to what extent, you put those components in your investment game plan, such as the amount of stocks versus bonds, in your portfolio; what stocks you invest in, US or International, makes sense. Small sized companies, midsize, large size companies, financial legacy plan, if that is a consideration for you. Again, those income needs relative to the size of your portfolio; all these things are going to impact what your investment allocation is going to look like.
And then of course, that's how you set your target allocation. That's how you set your game plan. And history shows us that the most successful investors are able to stick with that game plan, regardless of the events. We call that process of sticking with your game plan rebalancing. And rebalancing is merely that act of reviewing your targets versus where you are today, and making the necessary changes, periodically, to get back to that target. Because again, we decided that target is what's appropriate for you, and your long-term goals and needs. So again, it's setting that game plan and then rebalancing. Those are some of the highlights that you should keep in mind as you think about your investment game plan as you leave Verizon.
Okay, thanks, Bobby. And, and to your point, whether it's the investment game plan, or the other items that we talked about earlier in this presentation, we're really just scratching the surface when it comes to all the things that you need to think about when you are retiring from Verizon. And, in all honesty, it is a quick turnaround time from when a lot of people discovered they would be accepted for the offer.
And so, we really encourage you work with your advisor. Use the resources available to you, just to make sure that no stone is left unturned. And that being said, we do have some questions that were already submitted to us. We also threw in, one or two, that we've received many times before from previous live Q&As and live webinars. So, we'll ask some of those as well. And if you all, tuning in, think of any additional questions, please feel free to submit them to us. Let's get started. This first one is, Bobby, “How should I change my investment strategy in retirement versus when I was working?”
This is a great question. A lot of it depends on your starting point. And a lot of it depends on your goals, the tools that we discussed that you might have going on into retirement or after your life at Verizon. For many of our Verizon clients, leading up to retirement, many of you already have a path into a retirement like an investment portfolio. With that in mind, you may not change very much. If you are a growth-oriented investor at Verizon, and you won't be needing those assets for a long time, you may still become a growth-oriented investor after leaving Verizon. It always comes back to, “What are my goals? What am I going to need? What are my long-term objectives for this money?”
A lot of clients that I'm working with, specifically who worked for Verizon, and are now retired, didn't necessarily change their overall investment game plan. It doesn't mean that we're not making tweaks and specific changes on a more detailed level, but that overall target allocation, specifically, doesn't necessarily change just because you are retiring.
The next question that we had submitted to us, “I won't be 55 until December of this year, will the 401(k) age 55 rule still apply to me?”
As long as you turn 55 or older in the year, you separate from service, the rule does apply.
Okay, next question. “What's the difference between keeping my money invested in the 401(k) or rolling it into an IRA?”
That is a great question. The 401(k), particularly the Verizon 401(k), is a great wealth accumulation vehicle. And there are a lot of benefits to it. If you're comfortable with the investments that you have in your 401(k) today, you can keep them. As long as you have above a very low minimum threshold that Verizon puts in place, you can keep your assets within your 401(k) throughout retirement if you'd like to. 401(k)s tend to have lower fees than other investment options.
With that in mind, there are some benefits to investing in an IRA as well. The first being that in the 401(k), you have a select few investment options compared to the IRA. There's a much wider array of investment options available to you. Within an IRA you can also have your assets professionally managed by an advisor. That's not possible at this point in the Verizon 401(k). And this last one, can be important to those of you who are taking income from your 401(k). The IRA provides more flexibility and choice when it comes to how you take your distributions. You could take them on a monthly basis, bi-monthly, etc. As Casey mentioned before, you get one annual withdrawal from the Verizon 401(k) for each calendar year. So those are just a couple of different factors.
Casey, I may have already asked this to you earlier on, but even if you're 59 and a half or older, you are subject to one annual withdrawal in the 401(k)?
Right, once you retire; just one per calendar year.
Next question. “I want to roll over my 401(k) into an IRA after I retire. Will I need to fill out a distribution form with Fidelity?” Casey?
There is no paperwork required, just a phone call to Fidelity giving them the name of the IRA custodian, how to make the check payable, then you get the check sent directly to your home address. Then you forward it to the custodian.
Speaking of requesting a 401(k) rollover, but also timing in terms of commencing the pension benefit as well, if you're going to do a lump sum pension rollover, and if you're going to roll over your 401(k), what we have found, in our experience, is that having the IRA already set up is ideal. For the pension lump sum paperwork, you're required to have the IRA set up already, because the paperwork asks for the account number. And if you do it over the phone with them, then you're going to have to have that ready for them on the phone.
When you call Fidelity to request a 401(k) rollover, you don't necessarily need to have the IRA set up to receive that check from them. You're already going to need it for the pension - you're going to need to get it deposited into there anyway.
Now these last couple of questions. They're questions that we've received before, and we wanted to ask them here as well. So, this next one, “What should I do with my Roth 401(k)? Should I spend it first, since it's tax free?” We get a lot of questions like that. Bobby, what would you say about that?
First of all, if you have a Roth component to your 401(k), in addition to the traditional component, in addition to the pension lump sum that can be rolled over into the traditional IRA, that's a really powerful thing to have that tax diversification because it gives you a couple of different options. And speaking of taxes, we talk a lot about taxes before age 59 and a half; how we can avoid those IRS penalties. Well, taxes are still very important throughout retirement as well. And that Roth 401(k) can be a powerful tool for you to avoid taxes on any lump sum needs in excess of what you typically would take as income, particularly if you're going to take a lump sum.
For example if it’s a one-time expense to purchase a home, or go on a big vacation, if those withdrawals could potentially bump you into a higher marginal tax bracket, well, then you may choose to use that Roth 401(k) component where qualifying withdrawals are tax-free. Out of that Roth 401(k) you may choose to use that bucket for that one-off, expenditure. Now there could be other cases where you would want to use it first, where it could it be advantageous to do that. But in general, there are tax efficiencies that can be implemented when you have that Roth 401(k) income, as well.
And when we talk about tax-free Roth withdrawals, we're assuming that all of the stipulations and all the criteria are met. We recommend and encourage you to work with your advisor, or your finance professional, or your CPA, to just make sure that they would be qualified withdrawals from the Roth.
Okay, last question, Casey, “How do I choose between a 72(t) distribution and an age 55 401k withdrawal?” So, if someone retiring would have to be at least 55, not yet 59 and a half, they have these two options. How do they go about choosing?
Well, I think it's age-determined, primarily. If you're under 55, you want to choose 72(t). If you're older than 55, for example, I have a client, she's retiring now, she's 58. She doesn't want to be pegged in that five-year payment to the 72(t). So, she's using the age 55 rule to avoid being locked into the same payment through age 63.
Versus another Verizon retiree that we're working with who retired earlier this year at age 50. That 72(t) was very powerful because it allowed them to access their wealth without that 10% penalty at a much earlier age than they otherwise would have been. So again, very age-dependent; seeing the size of the 401(k) that you have to have enough assets in the 401 K for it to make sense for you.
I'd say the last component is your income needs. There have been three or four different people this year alone where they have because of the age in which they are retiring (they're younger than 59 and a half, but they were at least 55), they had that choice or a hybrid of both. And so, what we did on our end is an internal analysis of both of those options, and helped determine the pros and cons of one versus another option. And then we helped those individuals come to a decision in terms of what they want that income game plan to look like until they reach that age 59 and a half, and have much more flexibility.
That's it for questions this evening. Our emails, as well as our phone numbers, are at the bottom of the screen and you can search Hapanowicz & Associates on YouTube. If you would like to watch other Verizon-centric videos, we have related videos. For those of you tuning in who maybe just wanted to learn a little more about the retirement process, but have not yet actually received or accepted an EISP offer, and you're still working and you're holding out for that next offer, definitely search us on YouTube.
And feel free to reach out to us if you have any questions or want to discuss any of this further. And we will see you next time.
Thank you so much for tuning in. We appreciate it. Take care, everybody.