Tuesday, May 9, 2017

Early retirement buyouts. How to evaluate an offer.

"It is never too late to be what you might have been." - George Eliot, novelist, poet and journalist, who was Mary Anne Evans but used a male pen name. (1818-1880)

By Julia Anderson
Despite the improving economy, employers in certain industries continue to look for ways to cut costs by laying off workers.

Kroger Co., parent company to Portland-based Fred Meyer stores, announced late last year that it will reduce costs by offering early retirement to 2,000 corporate administrative employees.  Depending on how many employees voluntarily accept the buyout package will determine how many will be laid off -- without the package -- to meet the 2,000-job reduction quota. Kroger administrative employees were given two months to make up their minds.

Boeing Co. said it will implement a voluntary early retirement plan this year. Intel, Oregon’s largest private employer, has been cutting jobs. Boeing said as many as 1,880 machinists and engineers could be affected.

In offering early retirement packages or job buyouts, employers must be careful to avoid age discrimination. But there are proven legal ways to do that. The early retirement package or buyout must be voluntary based on tenure or other neutral criteria. A worked must get at least 21 days to consider the offer.

Employees accepting an early retirement or buyout will be asked to sign a carefully drafted “release agreement” explaining their rights under federal law as they walk out the door. That makes it hard to sue for discrimination.

So how do you evaluate an early retirement package if you find yourself in the cross hairs your employer’s cost reduction/buyout program?

There is much to consider: health insurance coverage after you leave the job, how close you are to age 65 when Medicare kicks in, how close you are to taking Social Security benefits and whether the company might offer “bridge money” to get you to Social Security.

The biggest decision comes first. What are the consequences of turning down the buyout offer, dodging the layoff bullet and keeping the job? Only your gut can answer that one.

While, facing a layoff is no fun there are some positives.

A layoff qualifies you for unemployment benefits if you sign up and look for a new job through your state unemployment agency. Human resource administrators can explain how this works, what the job search requirements are and how many weeks you might be eligible for unemployment benefits.

Secondly, you can buy health insurance coverage through your former employer’s insurance plan for at least 18 months, thanks to COBRA, a federal law passed by Congress in 1985. Some employers let you stay with the company health insurance plan until you reach 65.

In addition, some employers might offer “bridging money” to financially bridge the period between early retirement and when you are eligible for Social Security benefits.

But who wants to take reduced Social Security benefits at 62 when full benefits only kick in at age 66 or 67?

The biggest negative of taking an early retirement offer is that you no longer will have the job and its income to support saving through the company-sponsored 401(k) program. If there’s a pension, it will likely be smaller than if you had kept the job longer. That means less to live on in real retirement.

Whatever you do, give yourself plenty of time to evaluate the offer!!

Reinventing yourself

Some people reinvent themselves after an early buyout by starting their own business, by finding another job or by working part-time. How long you have to figure that out depends on how much you employer offers in severance pay.

Severance usually consists of your current salary plus addition money for the number of years you’ve worked for the company.

Keep in mind that experts say that the amount of money you need to live on in retirement should by about eight times your income. So if your household income is $100,000 a year, you will likely need at least $1 million in retirement savings to enjoy a modest retirement.

Meanwhile, do NOT make early withdrawals from your 401(k) retirement savings plan but instead move it into a self-directed Individual Retirement Account with an online brokerage or a trusted local firm. Money withdrawn from a company-sponsored 401(k) or IRA is subject to a 10 percent “premature distribution” penalty before age 59 ½.

Plus, you will pay federal income tax on the withdrawal. And you won’t be growing that money for your real retirement.

Those who have been through an early retirement buyout will tell you that it is a stressful time with lots of ups and downs. It feels bad to be asked to leave a place where you like the job, like the contribution you make and enjoy the people you work with.

Financial planner Jim Blankenship writing in US News &World Report warns that some companies “make an early retirement package seem more attractive than it really is.” He said that you may want to consult an independent professional adviser who “will work for your best interests” in negotiating a buyout.

Saying yes to a buyout may mean retraining for something new or doing something else that you’ve felt passionate about. But whatever, it will be a roller coaster ride.

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