Financial Living Blog

Watch Your Step: AT&T Pension Mistakes to Avoid

Dec 14, 2022 8:33:48 AM

AdobeStock_446110890The most important AT&T retirement benefit for most employees is their pension. It will provide substantial funds for creating an investment portfolio (lump sum) or a monthly paycheck throughout retirement (monthly annuity). You just have to decide what to do with it as you near retirement. And that’s where things often go wrong. You could get less than you deserve. To help you maximize your benefits, here are some AT&T pension mistakes you’ll want to avoid.

Taking it too early

You’re eligible for a vested AT&T pension benefit after 5 years of service. But you don’t want to retire early from AT&T if it means a smaller pension than you need.

However, your benefit will be negatively affected if you do not reach the age and service breakpoints for your employment position. Additionally, you may receive a reduced pension benefit if you take your benefit prior to age 55, unless you are a union employee with 30 or more years of service.

So, unless you know for sure you have enough retirement savings and other income sources to retire early, you may want to wait.

Look at it this way. The three factors that help determine the size of your pension benefit are years of service, a pension band (for union employees only) and your income level. The higher each of these factors, the greater your pension benefit.

Not choosing between the lump sum and annuity carefully

Upon retirement, you have choices.

You can elect to receive a monthly payout like a traditional pension. Or, both union and management employees can convert all (union) or a portion (management) of their pension into a one-time lump-sum benefit, which can be subsequently rolled over into an Individual Retirement Account (IRA) and then controlled by the retiree. Interest rates and life expectancy factors are used to calculate the lump-sum amount.

There are pros and cons to each payout option. Deciding which option is most appropriate for you requires many considerations. It is best done with the help of a professional, who can incorporate all aspects of your financial life – Social Security, 401(k), real estate, inheritance, etc. – into your decision.

Ignoring interest rate changes

Your AT&T lump-sum pension is calculated using the Composite Corporate Bond Rate, an interest rate published each month by the IRS. Each year, the company uses the rate published the previous November.

When interest rates rise, AT&T pension lump sum payouts fall. When interest rates fall, AT&T pension payouts rise.

Staying up to date can help you determine when it’s most advantageous to retire and what’s the most appropriate pension to take. Make it easy: subscribe to our AT&T Retirement University to receive a monthly interest rate tracker delivered right to your email inbox.

Overlooking your survivor options

The AT&T pension offers survivor benefits. If you pass away before retiring, your spouse automatically receives 50% of the monthly annuity or can choose the lump sum equivalent. This option is only available to spouses.

At retirement, you’ll have multiple survivor options to choose from for the monthly pension, but all are only available for a qualified spouse. Additionally, union employees also have the choice to take a full lump-sum pension payout instead of the monthly annuity.

Meanwhile, management employees generally have the choice to take a partial lump-sum pension with a residual monthly pension.

To make sure your spouse is cared for, you’ll want to choose the right option before it’s too late.

How to avoid these AT&T pension mistakes

The good news is that all these mistakes are easy to avoid. What can help you effectively utilize your AT&T retirement benefits is a financial plan.

If you need a plan: Contact an Advance Capital Management adviser who can help you create a personalized financial plan to avoid these pension mistakes as well as manage your 401(k), file for Social Security and more.

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