| Evaluating an Early Retirement Offer By Kathleen Thomas |
Today’s corporate marketplace is increasingly focused on cost-effectiveness and efficiency, and employers are searching for new strategies to reduce payroll
expenses. Rather than sending “pink slips,” more employers are offering early retirement packages to try to entice employees to leave voluntarily.
The decision whether to accept an early retirement offer can be distressing and complex. If you find yourself in this position you will need to carefully evaluate the
offer as well as your personal retirement goals and current financial situation.
Consider the emotional aspects of early retirement
Financial concerns are only one part of evaluating an early retirement offer. Are you emotionally prepared for retirement? Does accepting a company buyout plan
mesh with your retirement goals? Are there repercussions for turning down the offer? Would you continue to be happy at your job if you turned down the offer?
Assess financial implications for retirement
Once you’ve come to terms with the emotional side of early retirement, you’ll need to determine how your decision will affect your long-term financial security. Take
a look at your total financial picture. Can you afford to retire now? Will you still be able to reach all of your financial goals? Do some serious number crunching and
make a realistic assessment of your income and expenses throughout retirement, including the affects of both taxes and inflation. Remember, the earlier you exit
the workforce, the longer your retirement will be and the more money you will need to fund it.
Evaluate the overall attractiveness of the offer
Early retirement offers can vary dramatically from company to company, or even from employee to employee. How do you know if you received a good offer?
Typically, early retirement offers will contain a severance package based on your annual salary and years of service with the company. In some cases, you will
have the option of collecting the severance money as a lump sum or as a series of deferred payments. A lump sum allows you to invest the money immediately,
however, there are tax repercussions. Deferred payments create an income stream and allow you to spread out the taxes owed on the money. Be sure to carefully
examine assumptions about inflation, rates of return, and future expenses when you evaluate which option is best for you.
Other benefits that can make an early retirement offer more appealing include health and life insurance coverage for you and eligible members of your family.
Make sure you understand the costs associated with coverage, what will be covered in the plan, and how long the coverage is available. Analyze how an early
retirement will affect your retirement benefits
Traditional company pension plans are based on a combination of salary, years of service, and your age when you begin taking benefits.
Leaving your job before age 65 (potentially at a lower salary than if you elected to continue working) may reduce pension benefits you would otherwise have
earned. Be aware that the difference between full benefits and a reduced pension could be significant.
Your Social Security benefits may be affected by your decision to take early retirement as well. Social Security benefits are based on your average annual earnings
over 30 to 35 years of past work. If you are leaving work and any potential salary increases behind, your benefits will be lowered. Additionally, if you begin taking
Social Security benefits at age 62, your benefits will be lower than if you had waited until the maximum benefit is available at age 70.
The financial calculations and planning issues associated with taking an early retirement offer are complicated and often confusing. Since the decisions you
make now can be far-reaching, it is wise to seek help from a professional. To assist you in maintaining your financial security throughout retirement, consider
consulting a qualified financial advisor who can evaluate your options and suggest effective ways to reach your long-term retirement goals.
Kathleen Thomas is a Senior Financial Advisor with Thomas and Associates, a Private Wealth Advisory practice of Ameriprise Financial Services, Inc., with offices
located in Hampton, NH and Wakefield Mass. Kathleen works with individuals, families, and small businesses to help them make the most out of what they have.
She can be reached at (800) 640-0433 or by accessing her web site at kathleenmthomas.com.
expenses. Rather than sending “pink slips,” more employers are offering early retirement packages to try to entice employees to leave voluntarily.
The decision whether to accept an early retirement offer can be distressing and complex. If you find yourself in this position you will need to carefully evaluate the
offer as well as your personal retirement goals and current financial situation.
Consider the emotional aspects of early retirement
Financial concerns are only one part of evaluating an early retirement offer. Are you emotionally prepared for retirement? Does accepting a company buyout plan
mesh with your retirement goals? Are there repercussions for turning down the offer? Would you continue to be happy at your job if you turned down the offer?
Assess financial implications for retirement
Once you’ve come to terms with the emotional side of early retirement, you’ll need to determine how your decision will affect your long-term financial security. Take
a look at your total financial picture. Can you afford to retire now? Will you still be able to reach all of your financial goals? Do some serious number crunching and
make a realistic assessment of your income and expenses throughout retirement, including the affects of both taxes and inflation. Remember, the earlier you exit
the workforce, the longer your retirement will be and the more money you will need to fund it.
Evaluate the overall attractiveness of the offer
Early retirement offers can vary dramatically from company to company, or even from employee to employee. How do you know if you received a good offer?
Typically, early retirement offers will contain a severance package based on your annual salary and years of service with the company. In some cases, you will
have the option of collecting the severance money as a lump sum or as a series of deferred payments. A lump sum allows you to invest the money immediately,
however, there are tax repercussions. Deferred payments create an income stream and allow you to spread out the taxes owed on the money. Be sure to carefully
examine assumptions about inflation, rates of return, and future expenses when you evaluate which option is best for you.
Other benefits that can make an early retirement offer more appealing include health and life insurance coverage for you and eligible members of your family.
Make sure you understand the costs associated with coverage, what will be covered in the plan, and how long the coverage is available. Analyze how an early
retirement will affect your retirement benefits
Traditional company pension plans are based on a combination of salary, years of service, and your age when you begin taking benefits.
Leaving your job before age 65 (potentially at a lower salary than if you elected to continue working) may reduce pension benefits you would otherwise have
earned. Be aware that the difference between full benefits and a reduced pension could be significant.
Your Social Security benefits may be affected by your decision to take early retirement as well. Social Security benefits are based on your average annual earnings
over 30 to 35 years of past work. If you are leaving work and any potential salary increases behind, your benefits will be lowered. Additionally, if you begin taking
Social Security benefits at age 62, your benefits will be lower than if you had waited until the maximum benefit is available at age 70.
The financial calculations and planning issues associated with taking an early retirement offer are complicated and often confusing. Since the decisions you
make now can be far-reaching, it is wise to seek help from a professional. To assist you in maintaining your financial security throughout retirement, consider
consulting a qualified financial advisor who can evaluate your options and suggest effective ways to reach your long-term retirement goals.
Kathleen Thomas is a Senior Financial Advisor with Thomas and Associates, a Private Wealth Advisory practice of Ameriprise Financial Services, Inc., with offices
located in Hampton, NH and Wakefield Mass. Kathleen works with individuals, families, and small businesses to help them make the most out of what they have.
She can be reached at (800) 640-0433 or by accessing her web site at kathleenmthomas.com.
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applaud local women. The core of the magazine is our inspirational women's articles, most of which feature local women but occasionally we are
able to interview national women who we feel provide a unique inspiration for our readers. Our other articles cover topics of interest such as food
recipes, home, garden, beauty, health, fashion, dating, parenting, seniors, finance, business, hair care, skin care, advice, real estate, insurance,
weddings etc. Each issue has a feature section as well. Many of our articles are written by local business people who provide information
relevant to their business expertise. The Applaud Women website is also a resource center for local women including the most comprehensive
listings of Restaurants, Weddings, Female doctors and Hotels. It also includes a number of informational pages with links, articles and RSS feeds
to both local and national websites of interest to women in NH & n. MA.
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