Published: November 16, 2008 01:45 am            

What to do if you're offered an early-retirement buyout

Corporate downsizing has become so common that it hardly counts as news anymore — unless you're one of the affected employees. The common alternative to outright firings is to offer a buyout package that strongly encourages early retirement; in theory, the company achieves net savings from lower salary costs and a leaner organization. Usually, you'll hear of a buyout offer on the company grapevine before it's officially announced as your "opportunity" to retire early. You are usually free to refuse, but in reality, you could be terminated soon after with few or no benefits if you do. Alternatively, you might receive a sweeter offer within six months or more. If you think an early-retirement offer might be imminent, here are five things you should consider:

 

Step back and think about your plans

 

You generally have three main possibilities: get another job, work for yourself or retire. You should choose sooner rather than later, since it could affect whether you accept or reject your package. If you decide to seek another job, you should move quickly, because it's easier to find work while you are still employed. There's usually a comfortable period between the offer and the expected retirement date, during which you should try to line something up. Also, if you know you want to keep working, you may want to put off the retirement package for as long as you can. If you are trying to start your own business, however, you will probably need to gather as much capital as you can, including cash from your early-retirement package. If you choose to retire, you may want to place the entire package into an investment program.

 

Talk to a professional

 

It's smart to go over your specific package and plans with your professional advisor in order to review both the immediate offer and your long-term financial prospects.

 

Size up your

offer carefully

 

There is no standard offer, but the "sweeteners" you may see can include benefits such as: a bonus in cash, lump-sum payment of retirement-plan benefits, some salary continuation, a credit of extra years of service in your retirement plan, insurance coverage, continuation of medical benefits for a time, outplacement services and stock options. You need to consider the particulars of your package as they relate to your long-term plans.

 

Know the tax situation

 

Distributions from tax-qualified retirement plans are usually taxable to a large extent. This will generally reduce the cash you have available. You can also trigger an additional tax if you withdraw too much from a plan in a single year or if you are too young when you take your distribution. You should be able to defer taxes on your distribution until you need to receive it by rolling over your money into an IRA. Or, if you meet the age requirements, you may be able to use forward averaging to help cut the tax you owe on a retirement-plan distribution. Remember, Wachovia Securities is not a legal or tax advisor, so check with your tax professional before making a decision.

 

Can you negotiate?

 

Your offer may be standard, offered to all the employees in your category of service and age. Such an offer may not be negotiable. If you have received an individual voluntary separation offer, negotiation may be possible, and you don't necessarily have to accept or refuse the first plan offered. You may need a particular benefit that's not in the package or changes in the benefits that are included. Ask, and you may get a package that works better for you. Don't ask, and you likely will not.

An early retirement can be an excellent opportunity or a long-term problem depending on how well it fits your financial goals. For guidance in your specific situation, speak with your financial advisor.



This article was provided courtesy of Gerry Mitchell, a Financial Advisor with Wachovia Securities in Meridian, MS.  For more information, please call Gerry Mitchell at (601)483-3355.

        

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