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Big Decisions

The Truth About Taking a Package

Know what to do if you're offered a buyout or early retirement.

Your buyout offer is pretty reasonable. One week for every year of service is something of a norm, though some employers offer far less. Between accrued vacation and severance pay, you will have 30 weeks of income. If you have not found work by the end of the 30 weeks, you are eligible for unemployment insurance compensation. You should be fairly certain that you can secure your new job before your severance ends. If not, you’re probably looking at an income decline while on unemployment compensation and a big increase in COBRA health-benefit premiums, up to as much as $1,200 or more for comprehensive family coverage.
That’s a great deal to consider and as many uncertainties. Take your time. Discuss the decisions with family, friends, and coworkers. Talk to recruiters and even try to meet with prospective employers. Ask if you can meet with the outplacement professionals before you have to decide.
Based on just the information you’ve provided, I am inclined to suggest you decline the buyout offer if you believe it is unlikely you will be laid off in the future and your prospects for other work are not good. Finding comparable employment in today’s economy is a high-risk proposition. The 30 weeks’ pay sounds attractive, but that time can fly by and leave you in a very bad financial state. This is a time to minimize your risks.
Q: I never thought I would have to deal with the decision my employer of 37 years asked me to make. I’m 61 and have worked with the same employer since age 24. This is the only job I know, and my coworkers are family to me. I do have a pension, which my employer will “sweeten” by adding four years to my length of service, so my pension would be at the level as if I retired at age 65. I don’t want to start my Social Security until I’m at least 66 and would prefer to wait until 70 and receive an even bigger monthly payment.
I’m not covered by employer-provided retiree health care, so I would have to pay COBRA rates until I’m 65, when I would begin Medicare. I’m in generally good health and enjoy my work, though I must admit that I’m sometimes tempted to try something new as the last chapter in my working life. I don’t know which way to turn. How should I go about deciding? 
– Mary-Jane, Columbus, Ohio
A: I believe you have two fairly good choices: You can decline the offer and continue working until age 65 or so, when you are covered by Medicare. You will have four more years of income, and you could delay receiving Social Security at a reduced rate. Your full Social Security would begin at age 66. You would receive your full, age-65 employer pension. Also, you would continue to be covered by your employer’s health benefits. If you feel your job and employer are secure, and you are content in your job, I suggest you stay on.
There are pluses and minuses to accepting the early-retirement package. The first negative is that following your 18-months of COBRA health coverage, you are on your own for coverage until age 65. This will be at least two or more years, costing about $5,000 to $7,000 annually for individual coverage, and double that for two people. And don’t underestimate the shock of leaving your employer and coworkers of 37 years. Your workplace and colleagues are an important part of your well-being—physical and emotional. How big a loss would this be for you?
On the positive side, you will collect pension benefits for four or more years than if you had waited to retire. If money is a concern, you can find a meaningful “retirement job” to supplement your pension, and it may provide employer-sponsored health benefits. Some age-friendly employers offer comprehensive and affordable health benefits to part-time employees working as few as 24 hours a week.
I don’t believe yours is a financial decision; rather, it’s one of personal preference. How would you most enjoy spending the next four or five years? You are one of the fortunate few with the freedom to choose.

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