As buyouts are on the rise, there are many considerations you need to take before accepting an offer.
If you’ve been looking to make the math work on the potential of an early retirement, a buyout could make that dream come true. Recently both GM and Pfizer announced they’re buyouts to longtime employees, and some experts believe there’s more to come.
Considerations to Take
Buyouts aside, as you near retirement age, you may find yourself confronted with an offer from your employer for early retirement. While many early retirement offers initially seem attractive, it’s important for you to review the offer carefully before accepting to make sure it’s the right move for you.
So what common early retirement packages features should you be looking for?
Most early retirement offers include a severance package that is based on your annual salary and years of service at the company.
Sometimes an employer will add some additional years to sweeten the deal and make it more attractive. They may even add some years of service to get the employee to a higher payment level if there is a pension plan involved. Severance pay should also include all accrued vacation and any sick leave pay.
Due to the high cost of medical care, the number of companies offering this benefit is shrinking all the time; Which is why retiree health insurance can be a very attractive benefit. These packages usually guarantee medical coverage until you reach age 65 and become eligible to receive Medicare. And some packages continue to provide auxiliary medical coverage past that age.
Even if the offer does include medical coverage, make sure that you understand and evaluate the coverage. Will you be covered for life, or at least until you’re eligible for Medicare? Is the coverage adequate and affordable (some employers may cut benefits or raise premiums for early retirees)? If your employer’s coverage doesn’t meet your health insurance needs, you may be able to fill the gaps with other insurance.
Another type of early retirement offer is the Social Security “bridge payment.” Your employer provides you with temporary benefits to bridge the period between early retirement and the time when your Social Security benefits are scheduled to begin. The temporary benefits are usually equivalent to the amount you will receive from Social Security at age 62.
Signs You’re Ready
The No. 1 thing you should ask yourself before accepting a buyout is “Do I have a plan of where my income will come from?”. The 9 year bull market for stocks and low unemployment rates have put many in a position to take a buyout.
Other considerations to take:
- What impact will this have on your overall financial plan and goals such as retirement and sending your kids to college?
- What might you do next? Retirement? Self-employment? Look for another job?
- If you will stay in the workforce what are your employment prospects?
- How good are the incentives being offered? Can you or should you try to negotiate a better package?
- Are there consulting opportunities with your soon-to-be former employer?
When to Hire a Financial Advisor
The decision of whether to accept an early retirement offer is not an easy one to make. A financial advisor can inform you of the financial ramifications of the package. This might include the impact on your ability to retire.
While the offer may include some or all of the incentives discussed above, an advisor can help you assess your overall readiness for retirement:
- Have you saved enough in your 401(k) or other retirement plan?
- What other retirement resources can you rely upon?
- Do you have a pension?
- A spouse’s retirement plan?
- Other tax-deferred and taxable resources?
Early Retirement Financial Advice from CKS Summit Group
Planning is important because, all things being equal, an early retirement puts added stress on your retirement resources. The financial advisors at CKS Summit Group can put together a customized financial plan to achieve safe, healthy growth of your savings and preservation of your principal balance.
If you’ve been offered an early-retirement package from your employer, contact us today. We’re here to help you evaluate the terms of the package and the impact on your retirement; taking the financial guess work out of your golden years and ultimately help you sleep well at night.