During our 30+ years helping AT&T employees retire successfully, everyone has come to us feeling excited to start the planning process. But some have been surprised to find out our recommendations differ from what they heard elsewhere like those from New York or Alaska.
This is because there’s a lot of misinformation swirling around. As a fiduciary, we are legally obligated to serve your best interests at all times. So, we can tell you achieving the retirement you want most isn’t going to happen if you’re sidetracked by myths and false information.
We don’t want that happening to you. That’s why we’re going to bust the top six AT&T retirement myths so you can start building the retirement of your dreams right now.
Myth #1: I don’t have to do anything with my pension
As a defined-benefit plan, your AT&T pension is primarily the responsibility of the company. But that doesn’t mean you just wait for a check in the mail once you retire. You have major decisions to make.
AT&T employees can elect to receive a monthly payout like a traditional pension. Or, they can convert 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.
So, monthly or lump-sum pension?
Each payout has its own set of pros and cons. For more information, check out our blog, AT&T Lump Sum or Monthly Pension? Here’s How to Decide.
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.
Further, married employees have survivor benefit options to consider. At retirement, you 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.
Myth #2: Because of my AT&T pension, Social Security is less important
Along with your AT&T pension, Social Security will be one of your primary sources of retirement income. And just like your pension, you should carefully consider how best to use it based on your personal needs.
The size of your Social Security benefit is greatly determined by your age when you claim. You can receive your full Social Security retirement benefit upon reaching your Full Retirement Age, which is age 66 or 67, depending on your date of birth. But you can claim a permanently reduced benefit as early as age 62. Delaying Social Security until age 70 entitles you to a higher benefit of up to 8% per year. A benefit at age 70 will be 76-77% higher than the payout if you start at age 62.
Ultimately, factors such as your other income sources, marital status and health should guide your decision, not just when you can get the biggest Social Security paycheck.
Myth #3: When I retire from AT&T doesn’t matter
No, no, no. When you retire has a major effect on the quality of your retirement.
For one, years of service is one of the primary factors in your pension calculation. Generally, the longer you work at AT&T, the higher your pension. Your pension is also impacted by interest rates, which fluctuate. When rates are lowered, lump-sum pension payouts are increased, and vice versa.
Plus, AT&T retirement benefits are not set in stone. They are subject to change. For example, the significant changes made to AT&T’s pension calculation, health care subsidies and retiree health insurance.
You may find that it is more financially advantageous to retire sooner or later than your desired retirement date.
Myth #4: AT&T stock is a good investment
A common mistake we see when helping AT&T employees manage their investments is an excessive amount of their 401(k) invested in AT&T stock. While it can be rewarding to own a piece of a respected company like AT&T, it may be risky from a retirement planning perspective.
Firstly, most of your financial life becomes dependent on the performance of one company. That includes your current income and retirement income from the AT&T pension and AT&T 401(k) plan. Such a high concentration of your financial well-being in a single company is risky. Secondly, a single stock (in this case AT&T stock) can be riskier and more volatile than a mutual fund or the broader stock market. Therefore, the greater amount of AT&T stock you have in your 401(k), the more you can expect your investment return to fluctuate.
It’s more appropriate to diversify the investment choices in your AT&T 401(k) account. That means selling your AT&T stock and investing in mutual funds. The AT&T 401(k) plan offers a variety of funds to choose from, including U.S. and international stock funds and bond funds. The right mix of funds depends on your specific needs, goals and level of risk you’re comfortable with.
Myth #5: It’s better to leave my 401(k) with AT&T
Upon leaving AT&T, you may leave some or all of your savings in your AT&T 401(k) account. But there are a variety of benefits to rolling over your 401(k) to an Individual Retirement Account (IRA). These include greater investment choices, greater withdrawal flexibility, more withholding options, and professional management by an advisor of your choosing.
When done properly, no tax applies to the rollover. One area of your 401(k) that provides no flexibility is tax withholdings. Every withdrawal is subject to a mandatory 20% federal tax plus applicable state taxes.
Myth #6: Medicare will cover my medical expenses
One of the biggest expenses for most people in retirement is health care. Taking the time to review your options can help you plan accordingly and avoid large out-of-pocket costs that could derail your retirement.
Once you turn age 65 you are Medicare-eligible, and will have to transition out of AT&T’s retiree health care plan and into Medicare. You may continue to receive health care benefits from AT&T, but you and your Medicare-eligible dependents are required to enroll in Medicare Part A (hospital benefits) and Part B (doctor benefits). These two parts cover about 80% of health care benefits for individuals, so it’s important to consider your supplemental coverage options.
Around the time you turn 65, you will also receive information from Aon Hewitt, AT&T’s health care benefits service provider for Medicare-eligible retirees. Through Aon, you will select a plan that provides supplemental insurance to fill in the areas where Medicare does not cover you. You can choose a Medicare Advantage plan or a Medigap plan -- which is often paired with a Part D plan. There are benefits and risks to each plan, and most individuals have more than a dozen choices to choose from. With Aon, be sure to select the option that best suits your needs.