Getting the Most Out of an Early Retirement Package

It is important to understand that excepting an early retirement offer doesn’t mean that you must retire from the workforce all together. It just means that you can no longer work for that company. Before you accept an offer, there are some things you need to consider.

• What’s the severance package? This is often the first thing someone looks at in a package, but it shouldn’t be the only thing. The amount you’re offered usually depends on your annual salary and years of service at the company. Will this be enough to help you transition to the next phase in your life whether it be retirement, or finding a new job? What are the payout options? Should you take it in a lump-sum, or defer the payments over a few years years to spread out the income tax bill.
• What about health insurance? People often underestimate the cost of health insurance because their employer often covers a large portion of the costs. According to a Kaiser Family Foundation survey, employers cover 82% of the health insurance premiums for single coverage and 70% for family coverage. Companies may include health insurance coverage in a package, but this varies by employer. And keep in mind that Medicare doesn’t kick in until you are 65, but don’t forget your spouse. Just because you are on Medicare doesn’t mean you spouse is automatically covered. They too will have to wait until they are 65. So how are you going to cover the cost of health insurance until you either find another job with health benefits, or become eligible for Medicare?  
• Can you really afford to retire early? You typically have to work until your company’s normal retirement age (usually 65) to receive the maximum benefit from their pension. Accepting an offer to retire early may result in receiving a smaller pension benefit. And don’t forget about Social Security. Leaving to workforce early may impact that income stream as well.
• What happens if you say no? The consequences are hard to predict. You could refuse the early retirement package and continue to thrive with the company, perhaps even earning a promotion. Or maybe there is a reason the company offered you the early retirement package in the first place. This is were you need to use your best judgement and seek professional advice. But don’t take too long. You may only have a short window of time to make your decision.