Skip to main content
Pension Concept Word on Folder Register of Card Index Selective Focus

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.

Related Insights
I Stock 691524138

Speak to an Advisor: You Have Everything to Gain

Unlike professional services provided by an accountant or attorney, many people aren't quite sure what a financial advisor can do for them and exactly how they help you achieve your financial goals. Learn what you can gain from working with an advisor.

Read More
Family 3347049 1920

Financial Goal-Setting Starts with 'the End in Mind'

Setting financial goals is critical to smart family finance. Sounds easy, right? Not quite. For many of us, it's difficult to know where to begin when it comes to our personal finances. What kind of goals should you set and how can you be sure you're on the right track to achieving them? Learn how "beginning with the end in mind" can help you in your financial goal-setting.

Read More
Drums 2089829 1920

The Beat Goes On: Vaccine Optimism Paved Way for 2020 Record Highs, Sets Stage for 2021

What a year we experienced in 2020! The most tumultuous year in recent memory ended on a high note for markets as the fourth quarter brought greater political and medical clarity — one that resulted in substantial market gains over the past three months, which helped to make 2020 a surprisingly strong year for market returns. What can we expect in 2021?

Read More
Play