Consider Buy-out Offers Carefully

The good news? Your employer offers you the chance to retire early through a buy-out offer.

 

The bad news? Now you have to choose whether or not to take the offer.

 

How can you decide? Consider the following pros and cons of buy-out offers.

 

Potential Advantages

  • Eligibility for low- or no-cost health insurance coverage until you become Medicare-eligible at age 65, though fewer and fewer employers offer this option
  • Severance package based on your years of service
  • Extra years of service credited toward pension plan benefits
  • Avoiding a forced layoff in the future

Potential Disadvantages

  • Inability to afford retirement due to fewer working years
  • Gap in health-care coverage if under age 65 and no extension in coverage is offered by your employer
  • Loss of future wage earnings and retirement account contributions
  • Temptation to overspend or chance of mishandling a large sum of money from the buy-out offer

Consider the offer carefully

If your employer does offer a buy-out option to induce early retirement, consider the offer carefully! In many cases, setting aside a significant portion of the money you’ll receive to purchase an immediate fixed annuity will provide you with lifetime income, prevent overspending, and give you more peace of mind during your retirement years. You don’t have to buy the annuity immediately as part of the buy-out offer; instead, you can wait until later into your retirement years to make the purchase.

 

Set aside living expenses

At a minimum, set aside at least one full year of your expected living expenses in a safe, very conservative investment such as a CD or a money market mutual fund. A better option is to have between three and five years of living expenses safely set aside, just in case you retire during a down market.