Evaluating Early Retirement Packages

Should you accept your employer’s buyout offer? Financial and emotional issues can be difficult to balance.

Your employer has announced it wants to eliminate several hundred jobs by offering buyouts, also known as early retirement packages, to a group of employees. What if that group includes you? You had no intention of leaving. You like your job, you’re paid well, and your benefits are good. But your employer now appears to consider you expendable. To quote a famous rock anthem – should you stay or should you go?

Evaluating the financial implications of a buyout package can be difficult enough if you’re more than happy to go. It gets complicated on the emotional side when you intended to be loyal but now see that loyalty as betrayed. So consider first the security of your job if you decide to stay. Will it be eliminated later with a less attractive severance package or none at all? And if you stay and the job lasts, how will you feel about working for an employer that gave you the highway option?

Your age and life stage will greatly impact your decision. You may be young enough that retirement now isn’t an option, so the severance will be your paycheck while you find another job. Or you may have young children and decide severance will provide income while you stay at home for a few years. If you were looking at retirement within a few years anyway, this may give you the opportunity to start early.

Evaluate the Financial Pros and Cons of Accepting.

Of course, you’ll need to evaluate the financial pros and cons of accepting or rejecting the offer. That means more than just the bottom line cash, which companies usually calculate based on seniority and years of service. Consider bonuses, stock options, paid time off and insurance premium subsidies that you will no longer receive. Consult a tax specialist about the impact of receiving a lump sum or stretching it out over time – severance or early retirement pay is considered taxable income.

Don’t Wait Until the 11th Hour.

You may have only a limited time to consider a buyout package, so it’s important not to wait until the 11th hour. By signing a buyout agreement, you forfeit your right to sue your employer later on any employment and compensation-related issues, so resolve those before time runs out.

Buyouts often occur after a merger when duplicate positions need to be eliminated. Companies may offer a staying bonus to those who don’t jump ship to ensure they have adequate staff to complete the transition. If you accept a staying bonus, you should still dust off your resume and check your finances to make sure you can survive being terminated when the transition is done.

Take advantage of any extra services your employer may be offering to those who accept the buyout, such as career counseling or placement services, even if you plan to retire, so you can walk away assured you took advantage of every opportunity. Then meet with your financial services professional to determine how your goals and objectives may change in light of the buyout. Even if you decide to stay, you may identify a need for greater cash reserves or other financial plan revisions to prepare for moving to another job if your employment future looks uncertain.

Written by Securities America for distribution by Hunt Country Wealth Management. Securities America and its financial services professionals do not provide tax or legal advice. Please consult with your tax or legal professional regarding your individual situation.

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