Some larger companies may be suggesting early retirement.
Are you over age 55?
Have you been working for your company for more than 10 years?
Have you heard whispers of early retirement from co-workers?
If yes, you may need to start seriously evaluating your retirement.
According to a recent Money article titled “This Is the Only Time You Should Accept an Early Retirement Offer,” job cuts from voluntary severance saw a significant increase from 2017 to 2018.
Retirement may sound appealing.
No more working for “the man.”
Fantasy retirement is far different than the reality of retirement.
You will still have bills.
You will still have to buy food and groceries and pay for health care.
Your income pays for this now.
You will want to think about several factors before you accept an early retirement offer.
What do you need to consider?
How near are you to full retirement age?
Anytime someone offers a lump sum, it can be appealing.
Many buyouts range anywhere from a half a year of pay to a year and a half of pay.
This may seem appealing if you are in your early 60s.
There is a catch—Social Security.
Your benefit could be negatively impacted with six months to a year and a half of reduced earnings history.
The other issue is if you are forced to take Social Security before full retirement age.
It could reduce your benefit up to 25 percent.
What about your 401(k)?
Could you use it for income?
After reaching age 29 ½, you can make withdrawals without a penalty.
The issue is you whether you will be reducing your nest egg at an accelerated rate.
Once you reach 59 ½, you can start taking money out of your 401(k) without the 10% early withdrawal penalty–but that will reduce your nest egg.
How will you pay for health insurance?
Private insurance can be costly.
You will need to know how much you need to pay for the coverage you need.
After you have these numbers, you will be able to evaluate whether this is something you can afford.
Do not forget to take into account that your premiums and your deductibles will rise as you age.
What options do you have?
You could try to negotiate healthcare into your severance package.
Another option is the COBRA health coverage.
Companies with more than 20 employees must offer this to departing employees.
Regardless, such coverage is still expensive and will likely cost more than it did as an employee.
How large is your nest egg?
Are you debt free?
Have you paid off your mortgage?
Is your nest egg a healthy size?
If yes, early retirement could be feasible.
How much is a healthy nest egg?
You should be able to withdraw 4 percent of your portfolio each year.
Although annuities could be an option for some, they can be complicated and costly.
You should seek advice from a trustworthy and experienced financial advisor.
Do you have another job lined up?
A buyout from one job does not mean you need to stop working.
The search for a new job, however, can take months.
If you are offered a buyout and choose to accept, work on lining up a new job.
It could be a springboard into a new and exciting life change.
Whatever you choose, do your research and act wisely.
Reference: Money (October 29, 2018) “This Is the Only Time You Should Accept an Early Retirement Offer”