When companies look for ways to save money and reduce expenses in a soft economy, they look at the option of offering early retirement to workers nearing the golden years.  By buying you into an early retirement, the company saves money by hiring someone new at a lower wage or simply reduces their total workforce.  But how do you know if an early retirement offer is a good one or not?  Here are some important questions you should ask yourself:

Will the company keep my job if I refuse?

You may have to consider whether the company will simply cut your job if you stay – in which case you would be laid off, unemployed, and not have the early retirement offer.  It can be a gamble if you stay, and in this situation, you should think carefully about refusing an early retirement offer.

Can I negotiate?

If your employer is not in financial straits and is attempting to reduce its workforce, you may find yourself in a position where you can negotiate a better early retirement offer.  Possible negotiation terms could be a higher cash settlement, or even allowing you to remain on staff for another year or two then getting the payout.  It never hurts to ask in any case, and you could end up with a better deal.  Remember, your employer is asking you to leave.  You have the upper hand if they can afford to keep you.

Will I have healthcare?

Look closely at an early retirement offer and find out whether your health insurance premiums will continue to be met.  Some early retirement buyouts do not include health insurance, and you could be stuck paying a large amount of your early retirement settlement in insurance premiums.  This could be a good negotiation point too, if you choose to ask for a better offer. 

Should I consider my final Social Security benefit?

Absolutely!  This is extremely important because your Social Security retirement benefit is calculated based on the highest 35 earning years prior to filing for retirement.  If you accept an offer for early retirement, you could lose some of your highest earning periods and receive an ultimately lower Social Security benefit when you do apply for benefits. 

Additionally, you need to ask whether you would need to file for early Social Security retirement benefits.  Say you are 58 years old and were not planning to file for Social Security until you were 65.  If you were given an early retirement buyout of just a year or two of salary, you may have to file for an early retirement at 60, thus reducing your total yearly benefit from Social Security.   

These and other Social Security issues should be addressed before you accept an early retirement offer.

Can I work somewhere else?

If you do not want to file for early Social Security retirement benefits, you may want to consider the option of accepting your company’s severance and finding a job elsewhere.  Consider carefully, however, because the likelihood that you will find a similar job with similar pay is not high.  However, if you are given a decent severance offer and can afford to work just part time for a few years until you officially retire, it may be a great way to ease into your retirement years.

Each individual faces different early retirement buyout terms and negotiation strategies.  Meet with a qualified financial advisor  like www.kenhimmler.com or asset management group at www.iamllc.biz to discuss the best retirement plan for your situation.

Authored by Kenneth Himmler, Sr.

The first wave of post-WWII baby boomers are now zooming past the retirement finish line.  The Boomer generation spans about 18 years from 1946 to 1964, the oldest of which are now reaching retirement age.  Now that many of the older Boomers are reaching early retirement age, are they really financially ready to exit the workforce and enter their golden years?  The answer is both yes and no. 

Working Into the Golden Years

In the last two years, from 2007 through the end of 2008, only less than half of eligible Boomers who could take early retirement before the age of 65 did actually fully retire.  According to a study performed by MetLife Mature Market Institute, a Boomer survey response revealed that a majority of those eligible for retirement still work full or part time.  Many of those eligible for retirement found that the economic climate was not yet ripe, and they were determined to remain in the workforce until the economy gets back on track and their retirement accounts receive that little extra “padding” from the continuing work years.

401(k) Plays a Major Role

Of particular interest in the decision to retire early or not was the 401(k) or other retirement account.  In the last two years, and especially in 2008, many retirement savings accounts saw massive drops in value due to the stock market collapse.  About half of the surveyed Boomers expressed that they were behind in their retirement savings, and only a small percentage reported that they had achieved their retirement savings goals.

The Economy Turned Retirement Haywire

In comparing the MetLife 2007 study with the 2008 study, it appears that in 2007, 15% of those who would reach the early retirement age of 62 planned to fully retire.  A year later, only 11% of that small percentage actually did fully retire, while the rest continued to work because of the economy.  These workers were faced with a decision to continue full or part time work due to sudden changes in the economic climate and the value of their retirement savings.  Most of the older generation Boomers say they will now fully retire at age 66.

However, when the same question was asked of the older Boomer generation, their answer was prominently that most will not take early retirement at age 62. Rather, most say they plan to fully retire at age 64.  The sentiment of the younger Boomers is that they have more time to get their retirement accounts in shape and in a position to retire. 

What Nest Eggs are the Boomers Depending On? 

While most retiring Boomer workers will collect Social Security benefits, what are some of the additional retirement savings or investments that Boomers will depend on after retirement?

• 401(k) – About 54% of surveyed Boomers said they have a 401(k) in which they contribute toward their retirement.  

• IRA – Also, about 51% said they have an IRA in addition to, or rather than, a 401(k) retirement savings.

• Defined Pension – Less than half, 49%, said they will have a defined retirement pension from their workplace.

• Stocks, Bonds, Mutual Funds – 40% of those surveyed own stocks, while another 38% have invested in mutual funds.  Fewer, only 27%, own bonds for their retirement plans.

• Annuities – 37% of Boomers have purchased annuities that will pay them a regular retirement income.

As many early generation Boomers are experiencing, economic climates can play a big part in the decision to retire.  A retirement savings plan should include a broad spectrum of financial products that provide growth, while also protecting value in economic downfalls.  Anyone in the Boomer generation nearing retirement should have a good asset management company such as www.iamllc.biz or a wealth manager as www.kenhimmler.com on their side to formulate a solid financial strategy toward retirement. 

Authored by Kenneth Himmler, Sr.