Buyouts and Early Retirement

RetirementJobs.com Staff Writers

Question: I'm 53 and have been with my employer for 24 years and I really enjoy my work and colleagues. The economy has really hurt our sales and work in our plant is way down. I've had a good work history, solid performance ratings and decent raises until the past two or three years. After weeks of rumors about layoffs, almost everyone was offered what management has called a "Buyout Offer". The company has said that if not enough people take the buyout, it may be necessary to have further layoffs that may not include any incentives.

I have been offered one week of several for every year of services, or 24 weeks of pay, plus six weeks of accrued vacation. I will also continue on the employer health plan at employee rates for the same period and can then extend coverage through COBRA. My life insurance and disability insurance will end immediately. We have no pension plan but I have a good amount saved in my 401(k) plan. They have offered outplacement courses to help with a resume and my job search. This buyout sounds pretty good but I'd be giving up a lot and I'm not sure how easy it will be to find a comparable job with the economy in the dumps. I have a few weeks to decide and I simply don't know what to do. What do you advise I do? Mel - Houston, TX

Answer: This is a difficult decision. To begin, I suggest you not think about the terms of the buyout. Instead, ask yourself if you should try to complete your career with this employer or if you would be better off elsewhere. At 53, you have at least ten to 15 years, or more, years to work. How financially secure is your industry and your employer? Do you enjoy your work or could you see yourself prospering elsewhere? What is your family's financial situation and what are your likely obligations? How's your health? Would you be able to return to train for a new career? These are important decisions, and at age 53, you still have considerable flexibility that you may not have in three to five years.

Another concern is how confident are you that if you decline the buyout, that you would not be selected for an involuntary layoff if business gets even worse? Talk to supervisors and managers who will give you honest and candid feedback. Would you be rated in the top 50% of employees? Say what they will, employers tend to layoff the employees they consider to be the least productive. Also, be aware that there is an increasing tendency to retain the most experienced and capable workers. Workers age 55+ have a lower unemployment rate than younger workers.

If you decide that you want to stay with your employer, and there's a good chance you would not be chosen for layoff, the decision is made and the details of the buyout are unimportant. Decline the offer and continue to give you all at work.

The decision to accept the buyout is no less difficult. The basic question is whether you can secure a rewarding and meaningful job in your community or elsewhere if you choose to relocate. You must quickly go out and "test the waters" for suitable work. Can you find an employer where you can spend 10 to 15 years? How long might it take to find a new job? What pay level and type of health and retirement savings benefits can you obtain?

Your buyout offer is pretty reasonable. One week for every year of service is something of a norm though employers though employers may 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 benefits premiums to as much as $1,200 or more for comprehensive family coverage.