Welcome to the current series of Posts from Your Archives… and I will be picking two posts from the blogs of those participating from the first six months of 2020. If you don’t mind me rifling through your archives… just let me know in the comments or you can find out the full scope: Posts from Your Archives – Pot Luck – 2020
This is the second post of author and financial expert Sharon Marchisello. This week Sharon looks at the options, upside and downside of taking advantage of early retirement packages.
Should You Take an Early-Out Package? by Sharon Marchisello
Many businesses, particularly those in the travel industry, have been hit hard by the coronavirus pandemic. Thanks to government assistance, companies accepting aid have postponed massive layoffs and pay cuts. But some are now trying to reduce their payrolls by offering early-out incentive packages.
I spent my career in the airline industry and witnessed many ups and downs. Every few years, the company offered early-retirement and voluntary-departure packages. Sometimes, they’re very tempting.
In 2008, I took an early retirement package. It was right for me, and most of the time, I haven’t regretted my decision. I did get chilly feet when the financial markets crashed after the ink was dry on my signed severance papers, and my retirement accounts were suddenly worth a lot less than before. Fortunately, my company invited me back to work as a contractor several times over the years, which enabled me to bring in extra income to rebuild and increase my investments instead of drawing them down.
My husband is now faced with a similar decision. To stay for an uncertain future? Or take a lucrative package now and go?
Here are some considerations if you’re faced with the decision about an early-departure package:
What are you leaving behind? We spend so much time at work that it’s hard to separate our professional life (camaraderie with colleagues, the vocabulary of the trade, inside information, perks of the job) from who we are outside of our careers. Of course, some of your work friends may leave, but some will stay, and relationships will change when you’re no longer an insider. Do you enjoy your job? Will you miss it? If you stay, there might be some great promotional opportunities resulting from vacancies left by senior employees and grass-is-always-greener go-getters. On the other side of the coin, things may get worse and you might get laid off—without an incentive package. What is the company’s prognosis?
What comes after? Will you feel lost without a workplace to go to every day? Or do you have plenty of hobbies and social activities to fill your days? If you’re too young for Social Security and don’t have a pension—and even if you can draw both—you might need to get another job. Have you researched the job market? At the beginning of 2020, unemployment was historically low and jobs were plentiful. That changed overnight. Even though recovery is looking better than expected, there’s a lot of competition out there, and you might end up settling for a position much less attractive than the job you’re leaving. Have you fine-tuned your resume and honed your marketable skills? Have you built your network?
What are they offering? Regular retirement benefits most likely won’t change if you decide to wait, unless certain perks are being discontinued. In the “enhanced retirement” package my husband is considering, a severance check equal to six months’ salary is included. A severance payment can be a great jumpstart for an emergency fund if you don’t have one. But keep in mind, payroll taxes will be deducted, so the actual amount will seem much smaller than promised. My husband’s package also comes with some positive-space passes, which are like gold for airline employees used to traveling space available on crowded airplanes, and not looking forward to being demoted to a lower standby priority after retirement. However, there is a finite number of confirmed tickets; it’s not an annual allotment.
How will you manage without your major source of income? Can you afford to live without a paycheck? In my case, we were debt-free and had recently paid off our mortgage. We didn’t have any children to educate. If you have a lot of bills, think twice about leaving unless you have a new job lined up. If you’re lucky enough to have a pension and are ready to start taking Social Security, will that income cover your expenses and maintain the lifestyle you desire? If not, how will you make up the difference? Can you work part-time, or provide contract services? Do you have investments you can tap?
What will you do about health care? In our country, this can be a deal-breaker for many would-be early retirees, where health insurance coverage is still mainly tied to employment. When I retired, my husband was still working, and I was eligible to be covered under his plan. Now we’re both eligible for Medicare. Nevertheless, premiums must be paid, and Medicare doesn’t cover everything. Most retirees purchase supplemental insurance or a Medicare Advantage plan to bridge the gap. And the array of choices will give you a headache. My husband’s enhanced retirement package includes a generous Retiree Medical Account (RMA). Similar to a Health Savings Account (HSA), it can be used to pay qualified medical, dental, prescription drug, and vision expenses, including Medicare premiums. Unlike the HSA, which the insured person controls, the RMA is controlled by the company. The account owner pays for the services upfront and then submits a claim for reimbursement. Still, an excellent incentive, provided the company continues to follow through with the obligation.
Some steps to help you make the right decision.
- If you’re faced with a decision about whether to take an early out/retirement/severance package, take your time to read all the fine print. Weigh the pros and cons. Write them down.
- Talk to your colleagues. Keep in mind, everyone’s situation is different. But they may uncover some concerns or benefits you’ve overlooked.
- Discuss the situation with your family and make sure they are comfortable with the potential lifestyle changes ahead.
- If you don’t already work with a financial planner, now might be the time to talk to one.
- Evaluate carefully so you don’t regret giving up a valuable career before you’re ready, or passing up the opportunity of a lifetime.
What are your thoughts about leaving a job at this time? I’d love to hear your comments.
©Sharon Marchisello 2020 Freeimages.com
About Sharon Marchisello
Sharon Marchisello is the author of two mysteries published by Sunbury Press, Going Home (2014) and Secrets of the Galapagos (2019). She is an active member of Sisters in Crime.
She contributed short stories to anthologies Shhhh…Murder! (Darkhouse Books, 2018) and Finally Home (Bienvenue Press, 2019). Her personal finance book Live Well, Grow Wealth was originally published as Live Cheaply, Be Happy, Grow Wealthy, an e-book on Smashwords. Sharon has published travel articles, book reviews, and corporate training manuals, and she writes a personal finance blog called Countdown to Financial Fitness.
She grew up in Tyler, Texas, and earned her Bachelor of Arts from the University of Houston in French and English. She studied for a year in Tours, France, on a Rotary scholarship and then moved to Los Angeles to pursue her Masters in Professional Writing at the University of Southern California.
Retired from a 27-year career with Delta Air Lines, she lives in Peachtree City, Georgia, doing volunteer work for the Fayette Humane Society and the Fayette County Master Gardeners UGA Extension.
One of the reviews for Live Well Grow Wealth
Thank you for joining us today and I know Sharon would love to receive your ideas and feedback on the subject taking early retirement.