An Offer You Can't Refuse?
by Ken Morris
Many of us have heard the term "down-sizing". Down-sizing in
corporations has taken it's toll on the American worker. Many
people, ranging in age from their late 40s to early 60s, are
faced with very difficult decisions.
These middle-aged, middle managers are being asked to consider
"early retirement." The offers from their employers may range
from lucrative to paltry, but the decisions are difficult in
almost every case. Let's review some of the factors to consider
when evaluating one of these "offers you can't refuse."
There are two levels of concern that must be addressed. First,
you must consider the emotional aspects of an early retirement
decision. It is possible, in fact probable, that you never
considered retiring today. For many people, especially those in
their 40s and early 50s, retirement is still a hazy goal, far
off in the future. They may not have given any thought to what
they will do during retirement, whether they will seek other
employment or any of a myriad of other questions.
The offer of early retirement can affect those who choose to
stay with the company as well. Will they have the same,
hopefully positive, feelings toward their employer and
supervisor? Early retirement programs are often instituted by
companies undergoing stressful and uncertain times. Staying
around may seem almost as difficult as leaving. You may be
unable or unwilling to make financial decisions until these
emotional and psychological issues are confronted.
The other level of concern is financial. Obviously, you have two
choices: do I stay, or do I go? If you choose to stay, what is
the financial health of the company? Should you take the money
and run? If you stay, what are the prospects for career
promotions and pay increases? Will staying merely postpone an
inevitable career change, under perhaps less advantageous
circumstances? Of course, leaving is also fraught with
uncertainty. If you intend to pursue another position, many
experts have suggested that your job search will last about one
month for every $10,000 in compensation paid by the former
employer. Many early retirees become entrepreneurs, so the
prospects for a new business and the need for start-up capital
must be considered.
When evaluating the retirement offer itself, there are also a
variety of potential pitfalls. Health insurance is a major
concern for many, so find out whether you will continue to be
covered. Employers with defined benefit plans may be granting
additional years of service or assuming early retirees are older
than their actual age for purposes of computing their benefit.
The employer may also offer some additional benefit to tide the
employee over until age 62 when they can begin to collect Social
Security.
Tax issues also come into play. Numerous special rules may
apply. For example, those who were born before 1936 may qualify
to use ten-year forward averaging. Those who are 55 or older
when they receive their retirement plan distribution are not
subject to the 10% penalty. If you elect to pursue the
substantially equal payment exception to the 10% penalty, the
payments must continue for the longer of five years or turning
age 59-1/2.
Of course, this brief article is no substitute for a careful
consideration of all of the advantages and disadvantages of this
matter in light of your unique personal circumstances. Before
implementing any significant tax or financial planning strategy,
contact your financial planner, attorney or tax advisor as
appropriate.
About the author:
"Can somebody please help me watch, manage, invest or oversee my
401k" is the question Mr. Morris hears most often that causes
him the most concern. Fearing the American worker is being left
in the dark, Mr. Morris, a fee based Investment Advisor
Representative, based in Central Ohio, with Raymond James
Financial Services, Inc., helps 401k participants get the most out of their retirement.
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