Weighing an Early-Retirement Offer
When companies are looking to reduce the size of their workforce, they sometimes try to entice workers to give up their jobs through buyouts or early-retirement incentives. Initially, an early retirement with a cash bonus or a free year's salary sounds great. But many buyout offers will leave you permanently poorer in retirement. Here's a checklist to go over before you accept.
GAUGE THE COMPANY'S FINANCIAL HEALTH.
What's the likelihood that you'll be able to keep your job if you turn down the buyout offer?
REVIEW THE FINANCIALS.
Weigh the retirement incentive against the benefits you would have received in retirement if you had stayed at your job. Many pension formulas are calculated based on the average of what you earned during your final few years on the job. A one-time bonus isn't likely to provide more money than working longer and having more high-earning years factored into your pension calculation. It's a good idea to talk to an accountant or financial adviser about how the buyout income will affect your tax liability or your child's eligibility for college financial aid. Make sure that an early-retirement incentive package provides health insurance if you are younger than 65 and can't yet qualify for
REVIEW WHAT YOU ARE OWED.
Claim all the pay you are entitled to before signing a buyout agreement. "List out any money still due to you in the way of bonus and commissions," says
MAKE A COUNTEROFFER.
If you're one of many to receive a buyout offer because a business unit is closing or an entire department is being eliminated, you may not have much leverage to ask for a better severance package. But if the company offers buyouts to only a few employees, there's more room for discussion. "I believe every aspect of a retirement package is at least potentially negotiable," says
READ THE FINE PRINT.
Carefully examine the contract you're signing, and have an attorney look it over if you have questions. Employees are often asked not to work for a competitor or solicit customers from the company. Another thing to consider: If you're leaving to accept a severance when you otherwise could remain employed, you'll forfeit your claim to unemployment in most states, says
SIZE UP THE JOB MARKET.
If you take the buyout and find another job before the cash runs out, consider it found money. But if you need income and think you might have trouble finding another job with similar pay and benefits, it might be better to pass. "Even if you are able to get work before your severance runs out, it will typically be at such a diminished pay that it would be far better for you to retain your position if you can," says Busse. "Typically, those offers are not going to be equal to the cost of losing your position in the long term. If you don't have a job by the time the money runs out, it's a bad deal." Some workers use a buyout to transition into a part-time job or more enjoyable field of work. "This might very well represent a chance to bridge yourself into another occupation or circumstance," says Sklover. But other employees don't want to retrain for a new job so close to retirement age. "It would be hard to find a job with so many jobs lost," says Chisom. "At this age, I don't want a new job."
TIP: If you get another job before the buyout cash runs out, it's found money. But if you think you'll have trouble finding another position with similar pay and benefits, it might be better to pass.
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