Should You Take Early Retirement? How to Decide.


Should You Take Early Retirement? How to Decide.

by A. Scott White, CFP®, ChFC, CLU
President, Scott White Advisors

So you’ve been offered early retirement from your company. Whether this is a rude awakening or an anticipated event, you’ve got some thinking to do before you make a final decision.

Since it’s fairly certain your company isn’t making the offer solely for your benefit, it’s important to assess the reasoning and its severity. Downsizing and cutbacks happen, but if bonus cuts and salary freezes are included, you could end up being laid off in the not-so-distant future whether you accept the offer or not. Such circumstances make lucid deliberation and awareness ever more important. For example, paying attention to official company announcements might help you avoid missing the only chance you get for early retirement.

One of the aspects to consider is the status of your retirement plans before the offer was made. If you had a rosy financial outlook for your retirement, early retirement might be just the ticket to start a new phase of your life. If not, you’ll need to closely examine your current finances now and for the future.
For example, what will your income be and how much will you need to enjoy your retirement? Living expenses are just the beginning if you have children heading into college, a large outstanding mortgage or unexpected events. Unfortunately, taxes and inflation will continue to be a part of your financial picture, as will health care and insurance.

With longer life spans and increasing health care costs, health insurance is even more important than ever. Review the package carefully for health coverage and benefits and even how it might affect Medicare benefits, depending on your age. If your employer offers continued health care coverage as part of the deal, how long will you receive it? Through retirement, or only until Medicare kicks in at age 65? Consider whether you can purchase your own health insurance through your employer or if you can afford private insurance.
After you’ve added up your income and expenses, you’ll have a clearer idea of what your retirement will look like.

The next element to examine is the offer itself and what you might be sacrificing by taking it. Assuming you’re one of the lucky ones with a pension, you’ll need to review it, any matching 401K funds, and even bonuses to accurately assess the package and its merits. For example, will you get a severance package? Severance packages are frequently offered to make early retirement more palatable. This amount could be based on years of service. However, will it cover you during a transition period? Also, how will it be paid—lump sum or periodic installments? Regardless, you’ll most likely have to pay taxes on the amount you receive.

Depending on your age and eligibility, early retirement could also affect your Social Security benefit. Social Security is based on your average earnings over 30 to 35 years of work, so fewer years of work and the salary increases you might have received could produce a smaller benefit than planned.

Finally, there’s the whole emotional aspect of retirement. You may be relieved to end the day-to-day grind, especially if the going has been rough lately. However, it may feel like an abrupt end to what you considered a longer career. No matter which side of the fence you’re on, you’ll want to accept the circumstances and your reactions without letting them impact your decision.

If you decide to stay because it’s a viable option, you may want to think about your workload and working environment. If you’re the only person left, you may not enjoy work nearly as much, and you may have missed the only chance to leave with a severance package.

Taking early retirement comes with a host of tax implications and financial planning issues that can be complex and confusing. A CERTIFIED FINANCIAL PLANNER™ professional can help you sort through your options so you can make the best decision possible.

Scott White is past president of the Financial Planning Association Southwest Florida Chapter. He is past president of the Southwest Florida Chapter of the American Society of Financial Service Professionals, past president of the Lee County Estate Planning Council, and founding president of the Planned Giving Council of Lee County. For more information, visit www. or call (239) 936-6300. Scott White Advisors is an independent Registered Investment Advisor and is located at 1510 Royal Palm Square Boulevard, Fort Myers, Florida 33919. Securities offered through Raymond James Financial Services, Inc., member, FINRA/SIPC. Scott White Advisors LLC is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment advisory services offered through Scott White Advisors LLC. Any opinions are those of Scott White and not necessarily those of Raymond James. This information is not a complete summary or statement of all available data necessary for making a decision and does not constitute a recommendation.