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Three Questions to Ask When Facing an Early Retirement Buyout

Photo of author, Brian Gongaware, CFP®.
Brian Gongaware, CFP®
Director of Advisory Services and Chief Compliance Officer

Over the years, we have helped many individuals and families decide on whether to accept an early retirement buyout offer from their employer. What can seem like a simple decision does have some complexity and needs to be thoughtfully analyzed. Here are three key questions you should explore prior to deciding whether to accept or decline a buyout offer.

#1 Am I Financially Ready?
We find ourselves unsure as to how many financial resources are necessary for our entire life journey. Often with an early retirement buyout, there is a pension option. Is it best for me to take the lump
sum or the pension income? If I elect the lump sum, how should I invest that money? Or, which pension income option would be best for me and my family? The complexity of choices can be daunting. Consider talking with a financial advisor to help you spot any issues and craft a plan to maximize your probability of success.

#2 What Will I Be Giving Up?
If you are younger than age 65 and don’t yet qualify for Medicare, you may be losing lucrative health benefits previously received through your employment. COBRA coverage may be available for a limited time or possibly coverage under a spouse’s health insurance plan. There are many factors predicating continuing health insurance and the costs of doing so.

Another consideration that could affect your decision is a non-compete agreement, and the ability to continue working with your current clients (if applicable) should you wish to keep working. Some will want to talk with an attorney prior to signing an agreement, to be sure they understand the intricacies of the buyout agreement. If you’re fortunate, the retirement buyout may include a non-compete waiver.

#3 How Do My Social Security Benefits Factor into the Equation?
Social Security payments are calculated based on an average of the 35 years in which you earned the most, which could mean missing out on another year of high earnings. If you opt to collect before your full retirement age (66 for people born before 1960), your benefits are permanently reduced. If you delay claiming Social Security until age 70, you’ll get higher payouts for the rest of your life (assuming you live past age 87).

If your pension income, Social Security income, portfolio income, etc. is not enough to cover your basic living expenses, you may need to look for new employment. You may also have to think about downsizing or selling large assets to help fund your retirement.

As with most decisions, what you choose depends on your individual situation. With an early retirement buyout, you’ll want to consider reviewing all the numbers and realistically weighing your options before accepting.

The Final Countdown
Agreeing to accept an early retirement package is a big decision. Carefully consider the questions and impact of the issues raised.

Having a professional advisor as your teammate can help identify financial blind spots and assist you in successfully navigating the future. We invite you to learn how our leadership and expertise empower your family’s thoughtful financial decisions with a plan.

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