7 Questions to Consider When Reviewing an Early Retirement Package

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If you receive an early retirement package, consider these questions when reviewing your offer:

What is an early retirement 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 health care 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).

Does my retirement offer include health benefits?

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 health care 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. Even if you qualify, you may have to pay additional costs, such as a monthly premium, deductible and copays. 

If you don’t have health care benefits or don’t yet qualify for Medicare, you may want to consider purchasing a health insurance policy from the Health Insurance Marketplace. Visit HealthCare.gov for more information.

How does an early retirement package affect my retirement assets?

Retirement accounts

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 likely have to pay income taxes on withdrawals from your 401(k). 

Consult your company’s HR department or a tax professional if you have any questions about your specific situation.


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.

If you have a pension plan, check with your company’s HR department to see if this option is available.

How does early retirement affect Social Security or unemployment benefits?

Social Security benefits 

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. 

If you stop working before you start receiving benefits and you have less than 35 years of earnings, your Social Security benefits will be affected. The SSA will use a zero for each year without earnings when they calculate your retirement benefits amount. And years with no earnings reduces your benefit amount. Visit SSA.gov for more information.

Unemployment benefits

If you decide to take an early retirement package, you may still be eligible for unemployment in certain circumstances. 

Your state will have its own eligibility rules, such as a specific period of service with a company before you can claim unemployment.

What if I don’t want to retire early or I can’t afford to?

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? A financial advisor could help you crunch the numbers and come up with ways to update your budget to accomodate your new income.

Can I negotiate my early retirement offer?

Just as you would negotiate a salary for a job offer, you may be able to negotiate 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 health care policy, then ask your company if they are willing to swap health coverage for additional severance payments or something else that is more suitable.

What if I don’t accept my early retirement offer?

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 why your employer presented you with this opportunity in the first place. 

Perhaps your company is facing financial difficulties and has considered this offer to be the best course of action for both itself and its 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 the basics of your early retirement package before you decide.

And don’t hesitate to consult a financial advisor to talk through your options if your situation is complex. You don’t have to navigate this important decision alone.

Saving for a better future? See how you can start growing your money today with a Marcus Online Savings Account.

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