My husband has been offered early retirement and we don’t know what to do. The current pension and severance package that they are offering him for early retirement (ER) is good, but he is only 59 and is it good enough? It seems like if he doesn’t take the ER package, then he is working the next 2 years for free to retire at age 60 (like he originally wanted to do). It’s like he is stuck in the funny stage of being just a little too young to retire, but yet close enough since he has almost 30 years of service with his company. He has to make a decision soon. What advice do you have for us?
As if preparing for retirement isn’t stressful enough, sometimes you get tossed the hot potato of early retirement offers. Should I or shouldn’t I? Can I afford to take the package? Can I afford not to take the package? So many questions that need answers.
The first thing I suggest you do is see if you can determine why your husband is receiving the offer. Was he offered ER because the company is trying to trim costs? Or, do you think his position is being eliminated? If the company is trimming costs, he may have some options available to him. However, if you think the position is going to be eliminated, the writing may be on the wall.
While early retirement packages offer advantages and opportunities in some circumstances, there are considerations that should be examined before accepting any offer. Let’s look at a few areas in the hope that they help you evaluate your offer.
- Healthcare – I can’t emphasize how important this is. Depending on your husband’s job, employer, and/or offer, this may or may not be an issue. The bottom line is, you need to have a plan to cover your healthcare costs between retirement and becoming eligible for Medicare. If the company didn’t offer to continue to provide health insurance and you’re planning on purchasing a personal health insurance policy, go get some quotes and see if it can fit into your budget.
- Lost Retirement Contributions – Assuming your husband was contributing to a 401(k)/403(b), he’s going to lose the ability to save into that account and receive the employer match he was getting. With less time to save for retirement (and more retirement to plan for), how will that impact your total retirement savings? Additionally, if your husband will receive a pension benefit in the future, an early retirement will almost certainly reduce the monthly check because of the reduced number of years of service.
- Possible Tax Issues – How will the severance be paid out? If it’s a lump sum benefit, make sure it won’t push you into a higher tax bracket than what you’re currently in.
- Budget – I bet you knew this was coming. Simply put, the less money you need to live your desired lifestyle, the higher the chance of success. Now is a great time to dig through some bank and credit card statements and figure out where your money is actually going. If you don’t know how much money you need to run your household on a month to month basis, you need to get that figured out ASAP. Otherwise, you’re trying to make a big decision without a very important piece of information. Once that number is nailed down, how does the ER offer stack up? Does it cover your expenses until the originally planned retirement date? If not, how short are you and how do you plan on making up the difference?
Once you and your husband have evaluated the offer, looked at your own situation, and determined where you’re at financially, you’ll have the following options.
- Accept the Offer – This is pretty straightforward. Both you and your husband determine that it’s in his best interest to accept ER, and he takes the offer.
- Accept the Offer and Re-enter the Workforce – It’s determined that accepting the package is the best route, but he’s not really ready to retire (or you’re not ready to have him at home all the time). Your husband could re-enter the workforce for the next few years to earn some income, even if it is just a part-time job. Not only would this help ease the transition into full retirement, but the extra income would provide some wiggle room for you both while you’re trying to adjust to the new circumstances. A number of employers offer benefits to their part-time employees, too.
- Negotiate – If your husband would like to take the package but really isn’t sure it will work for your family, create a list of things that would need to change for the offer to be viable. The amount of the offer, health insurance coverage, and postponement (I’ll take the same package in 6 months) are all things that could be discussed. If there is a pension involved, ask to see if the company will consider adding years of service to the benefit calculation in order to boost the monthly benefit.
- Saying No – Your husband can decide to say “no thanks” for a number of reasons. But, be warned. If he’s holding out for a better offer, it may not come. First offers are sometimes the most generous you’ll get. Plus, if he declines the offer, he may face a worse situation in the near future… Being jobless with no ER package to benefit from. This is exactly why it’s important to try and figure out why he’s been offered ER.
Once you’ve had a chance to lay everything out and evaluate your options as best you can, I hope things become more clear for you. Good luck with whatever direction you choose.
Damian is the lead Financial Concierge on Your Money Line, the financial help line serving all Pete the Planner® Financial Wellness clients. Damian is a CERTIFIED FINANCIAL PLANNER™ professional and loves answering your money questions. Despite sharing a last name and sense of humor, Damian and Pete are not related.