If you receive an early retirement package, ask these questions when reviewing your offer:
With the economic downturn as a result of the Covid-19 lockdown, companies across various industries are facing an uncertain future.
Many organizations are being forced to cut expenses to stay afloat, and unfortunately, that means workforce cuts in the form of furloughs, payroll reductions and forced layoffs.
In some cases, companies may also present certain employees with early retirement offers.
If you’ve received an early retirement offer, accepting it doesn’t mean you must retire from the workforce altogether. It just means that you can no longer work for your current company.
If you think you may be getting an early retirement package, here are seven questions to consider as you review your offer.
Early retirement packages, also known as retirement buyouts, are generally offered to employees who may be approaching retirement age, usually in a company’s efforts to reduce its overall costs.
These packages may include perks in addition to standard severance benefits. For example, an employer may offer an extended salary continuation, a lump sum, payment of healthcare benefits or additional years of service to help employees reach the required time needed to collect a pension.
Some employers may even pay for career counseling or placement services to help you find your next job (if you want or need to keep working), but that benefit may be limited in the current environment.
Companies may include health insurance benefits for a period of time in an early retirement package, but this varies by employer. If your offer includes medical coverage, make sure you understand how long you’re covered for and to what extent. If health benefits aren’t part of your initial offer, consider negotiating for any crucial coverage and premium benefits with your employer.
If healthcare is not included, you’ll be responsible for planning future medical coverage and costs. And keep in mind that retiring from the workforce doesn’t mean you automatically receive Medicare benefits – eligibility doesn’t kick in until you turn 65-years-old. Even if you qualify, you may have to pay additional costs, such as a monthly premium, deductible and copays.
If you don’t have healthcare benefits or don’t yet qualify for Medicare, you may wish to consider purchasing a health insurance policy from the Health Insurance Marketplace.
For example, a 60-year-old on a Silver-level plan may pay an average monthly premium of $1,016 but this also does not include out-of-pocket expenses, such as deductibles, copays, or coinsurance.
If you have an employer-sponsored 401(k) plan and are 100% vested, then that money is yours to keep. After leaving your company, you can consider rolling your 401(k) over to a new or existing IRA.
Workers who are 55 or older that take an early retirement package may be eligible to withdraw money from their employer-sponsored retirement plan, such as a 401(k), without paying the 10% IRS penalty. This only applies if withdrawing from a current employer’s retirement plan, not any past employer. Just keep in mind that while you won’t have to pay the 10% penalty, you will have to pay income taxes on withdrawals from your 401(k).
Employees who have earned a pension may worry that taking early retirement will affect their monthly benefits. Many pension plans partly determine monthly benefits based on how long an employee has worked for the company, so leaving early could reduce that monthly figure.
To offset these concerns, some companies may increase the total number of years of service as part of the early retirement package. This can help bridge the gap for those who would receive a reduced pension as a result of retiring early.
An early retirement package can affect your Social Security benefits if you leave the workforce before working for a total of 35 years.
The Social Security Administration averages your highest-earning 35 years of employment to decide your monthly benefits.
For example, if you only worked for 32 years, then the government would add a $0 salary for three years to come up with your 35-year average. That means those three years of unemployment would technically count “against” you.
If you decide to take an early retirement package, you may still be eligible for unemployment in certain circumstances.
Your state may have its own qualifications, such as a specific period of service with a company before you can claim unemployment.
If you're unsure about your financial future, you might consider working with a financial advisor to go over your finances and how an early exit package may impact your retirement plans.
If you can’t retire just yet, try to determine if a part-time job will be enough to fill the gaps. If not, can you at least afford to take a pay cut with your next job? If so, how much? Try to map out these answers while also thinking about ways you can cut back on expenses and rejigger your budget to accommodate your new income.
If you end up landing another job, your early retirement package won’t be impacted. However, you may want to check for a non-compete disclosure that could prevent you from working with a competitor for a specified time.
Just as you would negotiate a salary for a job offer, consider negotiating an early retirement package, too.
Some employers may be willing to offer more money in the form of extended salary coverage or a lump-sum, better healthcare benefits or an addition to your years of service. Of course, they may decline, but you won’t know if you don’t ask.
Also, consider if there are certain aspects of the original offer that are not essential to you. For example, if you can be added to a spouse's employer-sponsored healthcare policy, then ask your company if they are willing to swap health coverage for additional severance payments or something else that is more suitable.
If you decide to decline an early retirement offer, you may continue working for your company as usual. But keep in mind, there may be a reason your employer provided you with this opportunity in the first place.
Perhaps your company is in dire financial straits and has considered this offer to be the best course of action for both itself and valued employees. Or perhaps it is considering a staffing reduction or restructuring that could make your position obsolete in the future.
Before you decline any offer, consider the chance that you could still be let go eventually, and that if another offer is put forward it may not be as generous.
Only you can determine if leaving is your best option, but these seven questions can help you understand your early retirement package thoroughly before you decide.
This article is for informational purposes only and is not a substitute for individualized professional advice. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of Goldman Sachs Bank USA, Goldman Sachs Group, Inc. or any of their affiliates, subsidiaries or division. Goldman Sachs Bank USA is not providing any financial, economic, legal, accounting, tax or other recommendation in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA or any its affiliates. Neither Goldman Sachs Bank USA nor any of its affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements or any information contained in this document and any liability therefore is expressly disclaimed.
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