Should I take a voluntary early retirement buyout?

January 04, 2021


7 minute read

In addition to major health fears, this year has also unleashed a number of economic concerns. Television, websites, radio programs, and social media feeds are jam-packed with chatter about the economic fallout from COVID: Unemployment rates, business closings, job losses, lower consumer confidence – the list goes on and on. With news of company cutbacks, one term that continues to surface is the offer of a voluntary early retirement buyout.

Simply put, a buyout is a form of compensation (or compensation packages) designed to incentivize employees to retire ahead of schedule. Companies often offer retirement buyouts to older employees with larger salaries, in an effort to reduce labor costs.

labor force rate for retirement aged workers

Case Study: Voluntary Retirement Packages in the Airline Industry

The COVID pandemic has devastated the aviation industry. In March of 2020, the International Air Transport Association estimated that the airline industry could lose between $63 and $113 billion (USD) of revenues due to the reduced number of passengers. According to an article in the Wall Street Journal, “A Boeing spokesman said the company expected several thousand employees to accept voluntary layoffs or retire. However, Boeing executives increasingly believe potential involuntary layoffs and production cuts may be unavoidable, depending on how the crisis unfolds, people familiar with the matter said.”

Unfortunately, the airline industry is not the only one to begin offering early retirement buyouts. The trend has gained popularity in the hospitality, restaurant, and retail sectors. Lately, we’re seeing it as an option for faculty and staff at schools and universities across the country.

A voluntary retirement package, at face value, may sound somewhat attractive. But, what if your employer approaches you, or your spouse, with an early retirement buyout option? Do you take it?

This article will walk you through the right questions to ask in order to help you decide your next move.

Can I Afford to Retire?

It ultimately boils down to this question. And, for many of us, it depends. There are many factors to consider like age, monthly expenses, and how much you’ve saved. Four of the most important questions that we ask clients include:

  • What other sources of retirement income do you have?
  • Are you married?
  • What are your expectations regarding family health history and longevity?
  • Will you work after the retirement buyout?
  • Are you of the age to collect Social Security?

Figuring out the answers to these questions helps us better advise clients on whether or not they should accept the offer. Ultimately, we want to answer the question, “How will you replace your paycheck?”

Our clients that are closer to retirement age usually have a good idea of future income and expenses. But, if you don’t have a retirement plan in place, now is the time to start one.

What Are My Health Care Options?

Another important factor to consider before accepting an early retirement buyout plan is available health care. Medicare begins at age 65. Before the age of 65, health care coverage is available through an employer, COBRA, commercial coverage, or purchasing on the open market. Being added to a spouse’s insurance, as well as Medicaid are also options. Momentum Wealth can help you understand how these options line up with your overall financial goal of financial security.

What Is Included in a Buyout?

A buyout package usually includes your salary extended for a certain number of weeks, months, or years into the future, which may or may not include benefits. All buyouts vary from employer to employer.

We advise our clients to make sure they understand the details of their buyout, as well as ask if any components are negotiable.what's included in a buyout package

Consider the Stability of Your Company

COVID has disrupted nearly every aspect of our lives, so taking the health of the economy into consideration is necessary when considering a buyout. For the airline industry, it’s no big surprise that cost-saving measures are taking place in order to keep that business afloat. Employees at Boeing, for example, must consider the fact that they could be laid off a little further down the road with fewer benefits. In a stable world, it’s more common for employees that are offered buyout packages to negotiate or bargain for a better deal.

Bottom Line

A voluntary early retirement offer can be a benefit to some and a burden to others, depending on your retirement savings plus the value of the offer. Age also plays a huge part in whether or not you are ready to retire.

Whether you’ve already made the decision to retire in the near future, or it’s years away, the emotional and financial stress can be heavy. Therefore, it’s important to find someone you trust to review the offer and perform an overall financial audit to make an informed decision.

Momentum Wealth has experience offering guidance to clients in these types of situations. If you have questions or need help with whether or not to accept an early retirement buyout, we’re here for you.

You can fill out a form or give us a call to get started today.

Matt Hightower

Matt is the co-founder of Momentum Wealth Management - an independent firm that specializes in creative financial planning solutions and diversified investment strategies.