May 1, 2018
Examining an Early Retirement Offer
Most early retirement offers come to employees that are close to retirement age – late 50s to early 60s. Generally, the offer is centered around a severance package that is based on your annual salary and years of service at the company. If you receive one of these offers, there are important factors to consider – Would the offer allow you to have your desired lifestyle in retirement? If not, what other income would be necessary? What would health insurance look like moving forward? How would your retirement assets factor into the plan?
Keep in mind that even if you retire early, that does not mean that you are eligible to withdraw from 401(k)s and traditional IRAs, unless you are over the age 591/2. Retiring at 58, for example, does not mean you can start withdrawing from your 401(k) without penalty.
A good severance package will include pension payments, health care, and additional benefits. Health care is important because without your job, and not qualifying for Medicare until 65, you’re looking at having to purchase health care for yourself. This cost has seen an exponential rise in recent history. Therefore, if you are offered a retirement package at age 60, and it does not cover health insurance, you will have to find an individual policy to cover you for five additional years.
A common feature in early retirement offers is bridging. Bridging is when your employer offers a temporary income supplement meant to bridge the gap between early retirement and the timing of your Social Security benefit. Consult with your human resources representative to ensure you have all the benefit details before reviewing with your Certified Financial PlannerTM.
Also, be mentally prepared to retire. Hello new-found freedom and goodbye corporate lifestyle! Embracing this new lifestyle can definitely sound appealing, but it can be hard to adjust to when you’re used to getting up for work every day. Ask yourself if you are truly ready to venture into this forgotten world of leisure.
Regardless of your initial thoughts and feelings on the matter, review the offer in detail with your certified financial planner to see if it aligns with your retirement goals. He or she can tell you the implications of accepting the offer, the impact on your ability to retire, and put together a plan that will factor in all aspects of the retirement package.
While this can be a lot to take in, there is one more aspect to consider. An early retirement offer by your company might be their way of letting you go gently. I know this sounds harsh, but if your company is ready to let you go, you should seriously consider taking the offer. Why? Because they have made it clear that they don’t need you. It is risky to stay with no assurance that they won’t let you go in the near future with a less substantial offer.
If you are presented an early retirement offer, contact a Gainplanner to help you sort out the terms of the offer and to see if it aligns with your retirement planning goals.
Gainplan LLC is a Registered Investment Adviser. This blog is solely for informational purposes and not a solicitation to invest. Advisory services are only offered to clients or prospective clients where Gainplan LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Gainplan LLC unless a client service agreement is in place. Please contact a financial advisory professional before making any investment.