As we continue to see the impacts of the Coronavirus Pandemic, many companies in the corporate environment are looking to cut costs, restructure, or downsize. To do this, employers may offer older employees an early retirement package. These offers can be exciting but often deciding to take this offer is unnerving, especially for those who have carefully planned for their retirement for years. Either way, it is necessary to evaluate if the offer fits your retirement plan and goals.
The Severance Package
A severance package is a typical component found in most early retirement offers. It is decided based on your annual salary and years of employment for the company. It often ranges from a week to a month of salary for each year that you have worked for your employer. It will also be important to investigate the payout options for your severance. You may consider taking a lump-sum payment. This can be a good option for people who will use this option to invest the money for it to provide income throughout retirement. It can also be good for paying off a large expense such as your mortgage, so you won’t have to worry about that expense during your retirement.
Another option is taking deferred payments over several years. This can be a good option if you want to spread your income tax bill on the money.
If you have a wealth manager, this is a great time to call them to discuss which payment type best fits your goals. It will also help ensure that the severance package is sizable enough to create a comfortable transition into the next phase of your life.
Health Insurance Offerings
If you are currently receiving health insurance from your employer, they may include medical coverage as part of the early retirement package. If they do not it could be a reason to reject the offer or negotiate. To weigh the pros and cons you will have to analyze your insurance options. Some potential options include COBRA, a private policy, dependent coverage through your spouse’s employer-sponsored plan, or an individual health insurance policy. Take into consideration the cost of these options while keeping in mind that as you age it is likely that your health care costs will increase.
If your plan does include health insurance or medical coverage, there are important questions you will need to ask as you are evaluating the offer. You will need to know how long the coverage will last. Often it will be until you are eligible for Medicare and occasionally it will cover you for life. Make sure you are aware of any cuts to your benefits or raises in your premiums your employer might make.
There are many other potential benefits your company might offer you in your early retirement package. If these are applicable you should consider asking about:
Employer-sponsored life insurance
Job placement assistance
Pension sweeteners
Company Stock Options.
You will want to identify your sources of retirement income and anticipated expenses. Make sure your income will be more than enough to meet your retirement goals. As you analyze your offer you should discuss these tough questions with a financial professional. A financial professional can help you with your options, cater to your goals, and come up with a plan that’s best suited to you. To set up a free strategy call 716-568- 8568.