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.


What's the likelihood that you'll be able to keep your job if you turn down the buyout offer? Linda Chisom, 63, a faculty assistant in Cambridge, Mass., recently accepted an early-retirement incentive package of one year's salary and retiree health insurance until Medicare coverage kicks in when she turns 65. Chisom, a 27-year employee, originally wanted to retire at age 66, the year she can claim full Social Security benefits. "[But] there's also the possibility of getting laid off in the future, which would mean you don't get that one-year salary," she says. "It feels like going to Las Vegas. You're just not sure what the outcome is going to be no matter what you do." Take your time deciding: If you are over age 40, you must be given 21 days to consider a severance offer under the Older Workers Benefit Protection Act.


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 Medicare. When you retire, you need to have a plan for paying your expenses for 30 years or more into the future.


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 Lita Epstein, author of Surviving a Layoff: A Week-by-Week Guide to Getting Your Life Back Together. "Make sure you are going to get some compensation for unused sick and vacation time."


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 Alan Sklover, an employment attorney in New York and author of Fired, Downsized, or Laid Off: What Your Employer Doesn't Want You to Know About How to Fight Back. "If you can, make a rational argument as to why [changing] the terms you would like them to change is in [your employer's] interests." For example, Sklover says you might offer to spend the next six months bringing in more clients or business in exchange for a larger payout.


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 Richard Busse, a partner at Portland, Ore., law firm Busse & Hunt and author of Fired, Laid Off or Forced Out: A Complete Guide to Severance, Benefits and Your Rights When You're Starting Over. You also may be asked to waive the right to sue the company for discrimination, commissions, or overtime.


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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