Should You Take That Early Retirement Offer?Submitted by Bernhardt Wealth Management on April 23rd, 2018
Many people who reach a certain age, after decades spent pursuing a career, start to dream of retirement. The exact shape of each dream varies. For some, retirement means finally having time to devote to a hobby or interest, like golf, travel, fishing, or painting. Others long to be able to pursue a second career or take advantage of educational opportunities. Some love the idea of giving back to the community through volunteer work.
Occasionally, companies will offer early retirement packages as an inducement to trim the size of the workforce without having to resort to layoffs or downsizing. Such opportunities can have strong appeal for those who, while they might have the option of working a few more years, realize that they are actually ready to move on to the next phase of their lives.
But early retirement packages can vary widely. Even if you’re looking to make a move, is it really in your best interest to accept that “golden ticket” your employer is holding out? When is it a good idea to take early retirement, and when should you pass?
Several considerations come into play here, and the first one is deciding whether you really have a choice. As mentioned earlier, some companies use early retirement offers as a means to trim back on employee costs, and if your company is in this position, it’s worth asking yourself how secure your future would really be if you continued to work there. If you’re feeling any sort of tremors in the foundation, Taking an early retirement could be a smart way to preserve what you’ve worked for over the years. Also, you should assume, in most cases, that the employer’s first offer will be the most favorable offer. Many are the tales of those who, for one reason or another, refused an early retirement offer, only to be laid off some time later under much less generous terms.
Next, you should look carefully at the specifics of the package being offered. Is a severance pay package or some type of lump-sum payment part of the deal? This is usually based on years of service with the company, and sometimes companies will offer credit for extra years to sweeten the offer. This can also impact any pension plans the company may have in place, as pension payments are usually calculated on a certain number of your highest-paid years.
Speaking of pension plans, you should become familiar with the provisions of your company’s plan, if it has one. Some plans include a spousal provision that allows payments to continue after the death of the retiree. Others permit an augmented payment if you retire before you are qualified to receive Social Security; once you start getting Social Security, the pension payments are reduced.
How about health insurance benefits? Though less common these days, some employers allow retired employees to remain on the group plan for a certain period of time. If this is not available to you, what are your options for coverage, in the event you are not yet old enough to register for Medicare?
If you’re old enough to receive Social Security, have you calculated your monthly benefit? The Social Security Administration website has easy-to-use calculators to help you figure out what your payments would be at various ages. It’s important to have this information in mind as you evaluate the early retirement offer from your employer.
If you are considering an early retirement offer from your employer, talking with a qualified, professional financial advisor can help. A trained advisor can help you evaluate your options in light of your financial resources, your age, your plans and goals, and other individualized criteria. Only then will you be able to make an informed decision about what is best for you and your family.