What To Do If You're Offered An Early Retirement Buyout
Corporate "downsizing" has become so common that it hardly rates as news any more
unless you're one of the affected employees. The common alternative to outright firings is to offer a
buyout package that strongly encourages early retirement. The theory is that the company will achieve
net savings from lower salary costs and a leaner organization. Usually, you'll hear of a buyout offer
on the company grapevine before it's officially announced as your "opportunity" to retire early.
It is likely to be an offer that's yours to refuse, but the reality may be that if you do, you will be
terminated soon with a lesser or no package. Or, you may get a sweeter offer in six months or later. If
you think you may be about to receive an early retirement offer, there are five things you should do:
1. Step Back And Think About Your Plans
You have three main possibilities: Get another job, work for yourself, or retire. You'll need a decision
on direction sooner not later, because your direction could affect what you do about your package. If
you want to move on to another job, you should get moving fast, because it's much easier to get work if
you are still working. There's usually a comfortable period between the offer and the expected retirement
date. Try hard to line something up before your retirement takes effect. Also, if you know you want to
keep working, you may want to hold off receiving the retirement package for as long as you can. But if
you are trying to start your own business, you will probably need to gather up as much capital as you
can, including cash from your early retirement package. With retirement, you may want to put the entire
package into an investment program.
2. Talk To A Professional
It's smart to go over your specific offer and plans with your professional advisor to get a review
of both the immediate offer and the long-term effect on your situation.
3. Size Up Your Offer Carefully
There is no standard offer, but the "sweeteners" you may see can include a selection from
benefits like these: A bonus in cash, lump-sum payment of retirement plan benefits, some salary continuation,
a credit of extra years of service in your retirement plan, insurance coverage, continuation of medical
benefits for a time, outplacement services, and stock options. You need to consider the particulars of
your package against your plans.
4. Know The Tax Situation
Distributions from tax-qualified retirement plans are usually taxable to a great extent. That will
reduce the cash you have available. Also, you can trigger extra tax if you take too much out of a plan
in a single year or if you are too young when you take your distribution. You should be able to defer
tax on your distribution until you need to receive it by rolling over your money into an IRA. Or, if you
meet the age requirements, you may be able to use forward averaging options to cut the tax you owe on
a retirement plan distribution. Check with your tax professional.
5. Can You Negotiate?
Your offer may be standard, offered to all the employees in your category of service and age. Such
an offer may not be negotiable. If you have received an individual voluntary separation offer, negotiation
may be very possible. You don't have to take or turn down the first offer. You may need a particular benefit
that's not in the package or changes in the benefits that are included. Ask, and you may get your benefits.
Don't ask, and you certainly will not get them.
An early retirement can be an excellent opportunity or a long-term problem if you can't make
it fit well into your plans. Being prepared is key to a smooth transition.