When you've got the best deal you think you'll find, you can now look into the implications for your life. The decision to accept an early retirement deal will most likely impact your financial situation after retirement or if you plan to work until retirement. If you're still not using an overall plan to plan your finances for retirement, this is the perfect moment to develop one. One of the most important aspects of the plan is to determine the best way to calculate the amount of income you'll require to cover your expenses and then determine the source of that income. In this case, you'll have to think about the benefits that an early retirement plan could offer in light of these figures.
Ideally, your plans should contain scenarios for rejecting and accepting the offer and possibly multiple ways to go about each. If, for instance, you are planning to accept the offer and then find a new job, the plan could include multiple scenarios on the time it will be before your new job is realized. Naturally, your plan should be able to consider how costs could vary depending on the scenario, such as the cost of health insurance, commute, and housing.
What's Included In The Deal?
Severance Payments
There are no laws that dictate how much severance payment early retirees should receive within the U.S. It is common for employees to receive between one and 2 weeks in severance every year they have served the company. It could be more for managers and executives. Sometimes, employers award additional years in service to increase the value of the offer and appeal. The bonus earned during service does not just increase the amount of severance pay; when a pension plan from the company is in play, it could also help boost the final payouts from the plan.
Other income plans may be included in an offer. Most attractive is the so-called salary continuation. Typically, this feature allows for continued salary payments for employees nearing retirement until they reach that age. This offer could be as a supplement or instead of the severance payment.
Certain early retirement plans also contain what's referred to as bridges. This is a type of income supplement created to bridge gaps between retirement early and eligibility in Social Security. The benefit amount is usually similar to the amount a worker would earn through Social Security at age 62. The ideal severance deal should also provide any accrued vacation or unused sick time. However, the benefits (sick pay, in particular) are not necessarily part of the deal.
Insurance Coverage
The growing costs in medical coverage have led to cutting down on the number of firms offering medical insurance to retired employees. In turn, this has caused this benefit to become less common in early retirement plans. If available, it covers those who have retired until they become eligible for Medicare and could offer additional protection beyond the age of 65.
A common feature of early retirement plans is the offer to pay the cost of your company's health insurance plan outlined by the Consolidated Omnibus Budget Reconciliation Act (COBRA). COBRA provisions permit temporary extensions of insurance coverage you received from your employer for up to 18 months and sometimes longer in certain conditions. It's not common for early retirement programs to pay for premiums for the entire time. However, many providers offer as much as six months' premium payment.
Employers that employ more than 20 people have to provide COBRA options but aren't required to pay any expenses. In addition, some states have local laws that are similar to COBRA. They typically cover health insurance plans of companies with less than 20 employees. They are typically referred to as mini-COBRA programs. You may also inquire whether your employer covers disability and life insurance during that time or, at a minimum, for a month before giving the continuance option.
Outplacement Services
Many employers, particularly large ones, provide a set of months or weeks of outplacement assistance in buyout packages. Outplacement services usually include individual counseling, the option to be in a shared office space, and the opportunity to participate in discussion groups or support groups arranged by the company that handles outplacement.
Find out if your employer is willing to extend the program and pay for prolonging the service if you cannot find a new job within the time period you've been given. If you're comfortable with the various options available within your local area, you could also request to pick the service you want. However, employers typically contract in bulk to utilize one particular service.
