With so many companies cutting their staffs and laying people off, it is no surprise that so many workers are being offered voluntary early retirement packages. In some cases these packages will be quite lucrative, while in other cases they are paltry. No matter what the offer is like, it is important to carefully review the details before deciding whether to accept the package.
Lump sum vs. annuity payments
Workers who are offered a voluntary early retirement package may be given a number of options for their buyouts. If more than one option is on the table it is important to evaluate each one to determine which one is best for you. Everyone’s circumstances will be different, so it is important to carefully evaluate each option.
You may want to get advice from a fee-only financial adviser before making a final decision. A fee-only financial adviser is paid to evaluate these kinds of options and help individuals make an intelligent and informed decision. When seeking out financial advice be sure to look for a fee-only financial planner — a fee-only planner derives his or her income from clients, not from commissions derived from investment recommendations.
Consider for instance a longtime employee who is offered a $100,000 lump sum early retirement package or a $5,000 per year guaranteed annuity payment. That $5,000 annual payment represents a 5% return on that $100,000 nest egg — more than CDs are paying at the moment but perhaps not enough to keep up with inflation in the long run. When evaluating the options it is important to consider all your circumstances, including any additional savings you may have.
What will you do after you leave your job?
One of the most important considerations is what you’ll do after leaving your current job. In many cases those workers would have stayed on the job for another 10 or 20 years, so filling the remaining years may be quite a challenge. Before you agree to a buyout it is important to think long and hard about what you want to do next. Perhaps you want to try a new career. Maybe you want to volunteer for your favorite charity. Having a plan in place will make your post-retirement years more fulfilling and more fun.
Do you have another source of income?
When evaluating an early retirement package it is important to consider other sources of income. Unless you are a CEO or your company is extremely generous, that early retirement package is unlikely to be enough to live on, so it is important to look at other sources of income. This includes any other savings you have in place, pensions from an earlier career and the like.
It is also important to take a realistic look at the long-term prospects for your employer. If your company faces a bleak future, the saying “A bird in the hand is worth two in the bush” may apply. In that case it may be best to take the buyout package and look for another job, rather than wait around and end up with a less lucrative package.