Early Retirement or Voluntary Retirement packages aren’t something new or genuine to our recent global pandemic, so navigating your options and steps to take can be done so with some seasoning.
These packages are usually offered to individuals or employees who are approaching retirement age, usually by a company taking actions to reduce its overall costs, tighten up the balance sheet if you will. Some of these packages can be quite generous and offer additional perks. Even so, it is important to weigh in how it will affect every individual.
There are several things to consider. The most obvious ones to employees in this day and age are - Will my retirement benefits include health benefits or at least an extension of them? Also, will the package affect my retirement assets?
First off, the offer of health benefits will vary from employer to employer. If the employer does offer an extension of health benefits, be sure to determine how long these medical benefits will last and to what extent they will cover you and or your family. If your employer doesn’t offer you healthcare benefits be sure to include these future costs in your future planning and household budget. The eligibility for Medicare benefits doesn’t kick in until you are age 65, so prepare to bridge that cost gap.
Secondly, the effect on retirement assets should be looked at on different levels. If an employer sponsored 401(K) is 100% vested, then that money is yours and you are free to “roll” those assets into an Individual IRA, without tax consequence with your trusted financial advisor.
Employees who have Pensions might want to inquire if the early retirement will affect the monthly income determined by their employer. Pension calculations are usually determined by the amount of time an employee has worked at the company, so will an early departure have a reduced monthly income figure? Another deeper question might be, is the pension fully funded or an obligation of the employer and if so, is there a “lump sum” option available with parting ways from your employer?
Equity compensation can be another factor to evaluate. If you receive company stock or stock options, is there an immediate vesting that will occur at separation or is there a possibility of leaving money on the table that you have worked hard for through the years? Once again, for each employer this is different but something to be cognizant of.
Social Security is another factor to consider. The Social Security Administration averages your highest earnings over 35 years of employment to determine your monthly benefits. If you leave early and remain unemployed, that could technically work against you.
The next concern is can you afford to retire early. Have you planned appropriately to prepare yourself and your family to cross the finish line comfortably? For each person this is different. But when offered this retirement deal you must decide if accepting this package is your best option. If you don’t take this package, is the employer in a position that it will have to start cutting headcount to put itself in better financial standings? Early retirements can be offered as a best course of action for valued employees before considering a further staff reduction.
Only you can determine if taking an Early or Voluntary package is the best course of action for you. If you have more questions and would like some further insight into analyzing your best course of action, feel free to connect with us here https://www.stage.fmgwebsites.com/www-spurstone-com/schedule-call. We are more than happy to help.
Ted de Groot
Partner Spurstone