Companies may offer early retirement for any number of reasons. No matter what their agenda is, whether it’s to downsize or restructure, your concern should always be whether or not it’s a good idea for you. 

Early retirement packages may look very attractive on the surface, but some implications will affect your pension and future earnings. For example:

• You will have less time to save for retirement. 

• Your savings will have to last longer. 

• The pension you collect might be less.

Additionally, you might not be psychologically ready to pack it in. If your work is intense and you’re used to (and thrive on) the go-go-go every day, how will you spend your time? 

What Does a Typical Early Retirement Package Look Like?

While it’s impossible to make a blanket statement on how an early retirement package should be structured, it generally consists of severance payments and medical coverage on top of the typical retirement benefits. 

To better understand its implications for you, it’s vital to evaluate the offer before accepting. Seeking out the counsel of your company’s human resources department is never a bad idea. 

If you don’t have an HR department, or if this option is not available to you, you could speak to the person in charge of employee benefits, or your Contravisory advisor. He or she will be able to provide you with more detailed information about the compensation and benefits you will receive each year following retirement. 

In any case, seeking out the advice of a professional advisor is critical. In many cases, the early retirement offer could seem more attractive up-front than it really is. You certainly don’t want to be blindsided. 

Tax Implications of Early Retirement

If you plan on taking an early retirement, be aware that there are tax implications for employer-sponsored plans such as 401(k)s and IRAs. Most of these funds are subject to a premature withdrawal penalty, but there are some exceptions. For example, you may be eligible to take IRA withdrawals and pay very low taxes if specific criteria are met. In any case, ensuring your withdrawals are made with the best possible tax efficiency is key. 

You may also want to think about how you are going to preserve assets for your beneficiaries and whether you stand to outlive your savings. Investments may need to be adjusted to maximize this potential and assure your quality of life. 

Healthcare Coverage

If your company is not offering ongoing or bridge healthcare coverage, you will need to think about how you are going to cover the gaps. 

Since medical coverage and related expenses tend to rise with age, find out what the cost of coverage will be to carry you through to age 65. This will, at least, give you a baseline to consider. 

Negotiating the Terms of Your Departure

Many people don’t consider that they can often negotiate the terms of their early retirement, much like job offers. For example, if you already have good medical coverage through your spouse’s plan, you might ask to have the cost of that benefit added to your severance.

If you are facing an early retirement offer and are not sure how to proceed, Contravisory can help. We will help you evaluate your options and ensure the decision you make is going to work for you. Schedule time with our team today to find out what’s possible.