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When You Should Accept an Early Retirement Offer

The days of working 25 or more years for the same employer are long gone. Yet many employees cling to the belief that they will have that option until they reach retirement age.  According to Money Magazine (Jan/Feb 2019) companies in 2017 offered 5,000 early retirement and buyout offers. That figure rose dramatically in 2018 when companies announced plans to
cut 46,100 jobs due to voluntary severance, which includes buyouts and early retirement offers.

Buyouts are generally offered to employees age 55 or older, who have spent a decade or more at their companies, but this can vary. It is a good idea never to ignore a buyout offer, because employees who don’t accept an optional buyout may find themselves on a layoff list a year or so later, without any buyout offer included.

So, if an offer comes your way, consider it seriously. Considerations you should take into account are:

  • Will you have the funds to support yourself without a steady paycheck? Even if you have
    a 401k, by invading it early prior to age 59 1/2 you will incur a 10% early withdrawal
    penalty for each withdrawal.
  • Will you have to start collecting Social Security retirement benefits at an earlier age than
    the optimum (70)? Earlier collection could reduce your lifetime benefits by 25%. These
    benefits generally replace only 40% of an average worker’s income.
  • Will you be required to buy individual or family health insurance to replace your company-provided or subsidized insurance? Will your income be too high to qualify for subsidies under the Affordable Care Act? Also, premiums and deductibles are likely to rise each year. Some buyouts do include healthcare coverage. Or, you may be able to negotiate a longer period of coverage if you feel you have valid negotiating grounds, such as being the victim of some type of discrimination.
  • Have you correctly estimated the amount of money you will need in retirement? Retirees
    can generally withdraw 4% of their diversified portfolio annually to pay for their
    expenses, and reasonably expect to have enough to last 30 years. The amount of savings
    should be 25 times your annual spending amount. So if you need $60,000 a year to live
    on, plus your Social Security retirement benefits, you will need a $1.5 million diversified
    portfolio to take out 4% a year.
  • Would you consider taking another job, shifting into work you find more rewarding, or
    starting your own business? In these cases, accepting a buyout is a good opportunity to
    retool.

Bear in mind that if you accept a buyout or a severance package your employer may ask you to waive any legal rights you have currently and into the future.

If you want to consider accepting a buyout or a severance package, talking to a knowledgeable employment lawyer can bring clarity to the situation and assist you in making this important decision that greatly impacts your future. The Law Office of Faye Riva Cohen, P.C. brings 45 years of experience to the legal advice it provides. We may be contacted at 215.563.7776 or at frc@fayerivacohen.com.

By Faye Riva Cohen, Esquire and originally published in PBA Labor & Employment Law Section E-Newsletter Fall 2019 edition and can be found here.

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