by Kristen Miller
In a business climate full of budget cuts and layoffs, many companies are putting together early retirement incentive packages to avoid making involuntary layoffs. Getting money and benefits for retiring early seems like a good deal, but there’s a lot to consider before accepting it. Ask several questions to gather information and assess whether the package is right for you.
How Will I Get Health Insurance?
For many people near retirement age, this is one of the most important questions to ask because you won’t qualify for Medicare until you reach age 65. One option if you are close to age 65 is to purchase COBRA benefits for up to 18 months to fill that gap. However, these benefits are quite expensive. Many companies offer health insurance as part of the early retirement incentive package. If this is the case, learn how long the coverage will last, how it will compare to your coverage while you were working, and whether it covers your spouse and dependents as well.
Will I Draw Social Security Benefits Yet?
You can start drawing Social Security benefits at age 62, but you don’t get your full benefits until you reach age 66 and you can get extra benefits if you wait until you’re 70. Therefore, it’s important to consider whether you’ll need to start drawing Social Security if you accept the offer, and if so, how starting benefits now will affect your monthly check.
How Will This Affect my Pension?
Early retirement can affect your pension, so it’s important to understand the impact. Your highest-earning years are usually late in your career, so giving up these years could lower your potential monthly pension payments. Also determine whether cutting short the number of total years you’ve worked with the company will negatively affect your pension.
Can I Get Another Job?
If you’re on the young side and weren’t planning to retire for several more years, you may want to consider accepting the early retirement package and getting another job until you want to actually retire. Consider how marketable your skills are and whether you think you could get a position in your area. Also learn whether getting another job will affect your early retirement benefits.
If I Don’t Accept, What Is my Chance of Getting Laid Off?
The last component to consider is how likely a layoff is if you choose to not take the early retirement offer. If your company is on the brink of going under, it may be smart to take the sure thing in the early retirement package. On the other hand, if you feel secure in your position and don’t anticipate getting laid off, keeping your job may be better.
Armed with all of this information, crunch the numbers and see if you can afford to retire now. Add up the benefits from Social Security, your pension, the early retirement bonus, and other sources to calculate whether they will cover your expenses. If they will, the incentive package may be one that’s worth taking.
Kristen Miller is not affiliated with or endorsed by LPL Financial or Mike Bonacorsi LLC
