Evaluating an Early Retirement Offer

As part of cutting costs and downsizing in today’s corporate world, your employer may have offered to you an early retirement package, which usually consists of severance pay based on your annual salary and your years of service. Some companies may even include health or life insurance to further tempt you. Before accepting this offer, you need to study carefully what is being offered as well as your financial status.

Determine how stable your finances are – If you plan to retire at the age of 65, but were offered an early retirement package at 55, determine if the money would be enough for the next 10 years. You also need to look into your family’s needs, and whether you will have enough money to finance your lifestyle.

Ask about health insurance – Not all companies offer health insurance to their early retirement plan. If the package does not include health insurance, look for ways to get yourself covered. One option would be COBRA, which is available 18 months after you leave the job. Other options include a private policy or even coverage through a spouse’s employment.

Ask about life insurance – If the company offers life insurance to early retirees, it usually has a limited scope and you could be responsible for the cost. If the early retirement package does not have life insurance, you need to decide on yourself whether it is important for you to have one before shopping around for individual coverage.

Ask about pension – If your employer has a pension plan, you usually cannot draw from it until you reach a certain age. But what’s exciting is that the longer you wait, the bigger the monthly payout. If you have a 401k or similar plan, you might be able to start receiving payment at age 55 without penalty if you retire early.

Consult your human resources department – If you have more questions about your early retirement package, do not hesitate contacting the people at human resources department. Even though you do not have an option of rejecting the package, you need to know how to deal with the finances in a less traumatic way possible.

 

Posted by Ardent Editor on May 5 2008 in Financial Planning

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