Due to Covid-19 there are more and more companies offering early retirement buyout packages to their employees. If you are presented with such an offer, should you take it? The answer is: Well it depends.

Your goal might have been to work a few more years before you retire however your employer comes to you with an offer for an early retirement package. Suddenly, there is a mixture of a little fear along with some excitement. You think to yourself “Could I possibly forgo my last three years of working and truly retire early?”

Most early retirement packages involve two parts: A severance package and continued employee benefits for a specific period of time.

What is a severance package?  Simply put it’s an offer by your employer to continue to pay you for a specific period of time. The offer might be to pay your current salary or a portion of your salary for a month or two, all the way up to 18 months. The length of time and the amount is largely based on how long you’ve been with the company and your position.

What is continued employee benefits?  Although pretty rare in this day and age, sometimes a company might offer to cover the cost health insurance for a specific time. Depending on the company, there might be room for negotiating some extra benefits such as the company covering the premiums on COBRA for a few months. (COBRA is a temporary “bridge program” that gives you coverage while you are transitioning to your next plan.)

Should you take an offer if you receive one?

Here are a few things to think about:

1) What happens if you don’t take the offer? Is your job in jeopardy anyway? Some companies offer early retirement packages just to slowly reduce the workforce and payroll. On the flip side, there are companies in a bit more dire shape who must reduce the workforce in a short period of time. Is your job going to be around in the future? Sometimes it’s hard to tell the motivation behind these offers and they are not always offered twice.

2) Can you negotiate more into your early retirement buyout offer? It never hurts to try. If there are mass early retirement packages offered across hundreds of employees, then it’s doubtful you’ll be able to negotiate a better deal. However, if you find out that you are one of a few to be offered a package, it never hurts to try and sweeten the deal. All they can do is say no.

3) What about health coverage? It’s great if you are offered health benefits for you and your family in this circumstance, but if not, are you prepared to take on the expense?

4) How will not working those extra few years affect your retirement? Perhaps you get a really good severance package. Is it enough to get you to retirement? Would a part-time job be enough to cover any income gaps you may have so you don’t need to touch your retirement savings until you had planned to originally?

5) It’s time to review your retirement plan and see if you can successfully pull off an early retirement. Would you have to pull retirement assets out in order to make this all work? If you’re under age 59 ½ and need to pull from your retirement funds, do you know the most effective way to do this?  Ultimately, are you financially prepared to walk away?

Review your current savings, investments and retirement accounts and see how they will be affected if you take the early buyout. Hire a financial advisor if you need help running those numbers.

Just because you are mentally ready to take the offer doesn’t mean that you’re financially ready. Gather all of the information you can regarding the early retirement buyout package. Review your current finances and know your numbers. Make sure that all your numbers work out before jumping on the offer. Make the best decision for you.

If you’re not sure, hire a financial advisor to help you.

Live free my friends,
Eric Gaddy