When we are young—in our 20s, 30s, 40s, and even sometimes 50s—we rarely think about retirement. Instead, we put our thoughts and efforts into buying homes and cars, advancing our careers, financing the education of our children, and maybe sparing some money for vacations and emergency funds on the side.
However, as we grow older and realize that we don’t want to be working forever, we begin considering our retirement options and trying to come up with a plan that will help us live freely and comfortably in our golden years.
This article will discuss everything you need to know about retirement, from whether you should accept an early retirement offer to whether you should continue working well after you’ve retired. We will talk about the pros and cons of each option and try to present you with as much information as possible so that you can make an informed decision. Let’s get started.
What Is an Early Retirement Package?
Many companies offer their employees early retirement packages to either reduce the number of paid employees they have or enable themselves to reshape their staff. In some cases, companies create personal retirement packages that are unique for each individual worker. In contrast, others extend standard buyout offers to an entire department or to particular employees that have reached a certain age.
The basic idea behind the early retirement package is to compensate the employee for leaving their job early. And sometimes, a good retirement package might actually be a good deal for the worker. On the other hand, when people get offered early retirement, it can make their working situation difficult. They start to ponder why their employer wants to let them go and what might happen if they decline the offer.
What Do Companies Usually Include in an Early Retirement Package?
The details of each individual deal tend to vary. However, at the heart of every early retirement package, there is almost always a severance payment compromising weeks, months, and sometimes years’ worth of wages. This sum of money may be accompanied by additions like paid insurance or aid as you transition to a new job.
What are Severance Payments?
There are no laws that mandate the amount of severance pay early retiring employees should get offered in the States. However, typically workers get offered one or two weeks of severance pay for every year they’ve spent in the company. This offer can grow if you’re in a position of leadership.
In some cases, employers award additional years of service for making their offers look better on paper. Several other income arrangements may be offered as part of the early retirement package. These are usually offered to employees who are near the retirement age and trigger continuing salary payments until the person reaches the required age. It’s often offered as an addition to severance payments.
There are some early retirement packages that include something called “bridging.” Bridging is basically an income supplement that intends to bridge the gap between early retirement and social security eligibility. Typically, the received benefits equal the amount that the employee will receive from social security when they reach the age of 62.
An early retirement offer should also include payments for unused vacation days or sick leaves in the best possible situation. However, typically pay for these days isn’t included.
What About Insurance Coverage?
Due to the increased cost of medical insurance, many companies don’t offer it as a part of their early retirement package. In fact, this perk has become incredibly rare nowadays. However, if available, this benefit will help cover early retired employees until they become eligible for Medicare and can provide additional supplemental coverage past the age of 65.
On the other hand, one of the most common benefits of an early retirement package is for the company to offer to pay for the cost of your health insurance policy. That’s largely thanks to the Consolidated Omnibus Budget, which allows for temporary continuation of the coverage the employer offered for up to 18 months and sometimes for even longer.
Companies that have more than 20 employees are required to offer the option of COBRA. However, they aren’t required to cover any of its costs. Along with that, many states have options similar to COBRA, which typically affect health insurers of employers that have fewer than 20 employees and are often referred to as mini-COBRA plans.
What Are Retirement Assets?
How your retirement plan, pension plan, and stock plan are affected varies from state to state and from employer to employer. That’s why you need to request a copy of the policies and have them reviewed by an attorney.
What Are Outplacement Services?
Large companies often offer a number of weeks or whole months of outplacement services as a part of early retirement offers. Outplacement services usually include one-on-one counseling, the option to work in shared office spaces, and the ability to join support groups and discussions offered by the outplacement company.
Employees can ask for this service to be extended and cover the costs if they cannot find a job in the allocated time. Additionally, they can also request to choose the service provider themselves, although employers offer them in bulk and use a particular provider in most cases.
Some Additional Early Retirement Perks
There’s a chance that employees get offered to use company property such as their laptops as part of their early retirement package. Additionally, some businesses offer the extension of the employee’s health club membership.
Should You Accept an Early Retirement Offer?
When considering whether you should accept an early retirement offer or not, you have to consider several factors:
- The specifics included in the packaged
- Your health insurance needs
- Your current age and social security benefits
- Your financial situation
- How likely it is for you to be able to get another job (if wanted or needed)
- What the consequences of not accepting might be
To determine whether accepting an early retirement offer is worth it, you have to find your answers for each of these points. For example, suppose you’re really close to retirement age, and the offer from your employer includes severance payments, health insurance coverage, and some additional benefits. In that case, it may be worth accepting it.
On the other hand, if you’re secure in your financial situation and you have a couple more years left until your reach retirement, accepting an early retirement offer that has great payment compensation might also be a good idea, as it will give you more time to live your life work-free.
Additionally, it’s good to consider what the market is like for your position—if you’re likely to get a new job soon, then accepting such an offer would certainly benefit you. Not only will you get paid to quit, but you will do so knowing you will be secure in your finances and career. Though, some severance packages may come with non-compete agreements, which prevent you from working in the same industry for a period of time.
With that said, if things aren’t going smoothly and you’re feeling pressured to accept an early retirement offer, it’s a good idea to consult with an attorney. They will help you negotiate a better deal, and you will be able to get a win out of negotiations with a company that wants to kick you out.
Should You Work After Your Retirement?
Most people go back to working either because they need the money or because they want to have some sort of structure in their daily lives. Your decision to return to work is entirely personal, but there are several benefits that you can get from returning to a job post-retirement. Those include:
- Getting more social interaction: Often, people tend to get lonely as they age, especially if they live alone and far away from their kids or family members. That is why having a place where they can go and meet other people helps them feel more fulfilled and less isolated. Many retirees also find it helpful to feel useful and to bring value to the world.
- Learning something new: The desire for learning doesn’t go away with age,, so having the opportunity to continue exploring new paths is both exciting and engaging for retirees. And it often becomes a reason for them to go back to work.
- Getting extra money: Of course, making more money is never a bad thing. It helps you fund a better lifestyle, so it’s a win-win situation for many retirees. They get the mental stimulation from work, along with the benefit of having more money to spend.
With that said, as with anything else, working past your retirement age also comes with a few cons, such as:
- Paying income taxes: Everyone hates paying taxes. It’s a universal law. Some people find it surprising that their retirement income is subject to income tax. However, it can get to a point where if your income level is high enough, you may be required to pay taxes for your Social Security benefits as well. And if you’re younger than your full retirement age, you may get lower Social Security benefits for a period of time. Many retirees that continue working are often hit with a nearly 15% income tax, which is not a small amount by any means.
- Having less free time: By the time you reach your 60s, you’ve probably worked for more than 40 years. And during that time, your free time was, of course, very limited. Continuing to work after that age will only make it harder for you to pursue your other interests in life.
With that said, as with anything else, working past your retirement age also comes with a few cons, such as:
- Paying income taxes: Everyone hates paying taxes. It’s a universal law. Some people find it surprising that their retirement income is subject to income tax. However, it can get to a point where if your income level is high enough, you may be required to pay taxes for your Social Security benefits as well. And if you’re younger than your full retirement age, you may get lower Social Security benefits for a period of time. Many retirees that continue working are often hit with a nearly 15% income tax, which is not a small amount by any means.
- Having less free time: By the time you reach your 60s, you’ve probably worked for more than 40 years. And during that time, your free time was, of course, very limited. Continuing to work after that age will only make it harder for you to pursue your other interests in life.
In Conclusion
Planning your retirement is never easy, as you’re faced with many options and have to make calculated choices that affect your future. That’s why we advise you to start thinking about your retirement as early as possible. It’s never too early to speak to a financial planner and make strategic career decisions.
Please feel free to reach out to me on this or any of your investment needs or questions. I may not always have the answers at my fingertips, but I promise I will get them for you. Michael Torrence
Calendly link https://calendly.com/mt-awf/intro Work: 435.658.1934 Contact: 330.284.3211
Michael Torrence – Investment Advisor Representative: Michael was born and raised in Ohio and attended The Ohio State University. After College, he was commissioned as a 2ndLt in the United States Marine Corps. He attended his initial training in Quantico, Virginia, then graduated at the top of his Primary Aviator Class and was selected for the Strike (Jet) Platform.
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