ACCEPTING A BUYOUT OFFER
is a great decision when?
The answer depends on what you need now and plan to do next. The most important consideration is what is exactly in your buyout package.
Large Lump sum offers are very attractive but you have to do your homework before you get too excited. All of the fine print and details must be reviewed and understood completely.
3 Major Points to consider accepting a Buyout Offer
1) What are your Career Plans?
The first step in reviewing your option to accept a buyout offer is to determine if you plan to retire or will you need to get a new job. If you are fortunate enough to be retirement age, the idea of accepting gets a lot more exciting.
Retiree’s must always consider the long-term. The determinant is what their current income needs are and how to get in a position to best suit them. A complete financial fitness review must be completed.
- How much are monthly expenses
- How much current debt do you have
- When will current debt be gone
- What are my spending needs
Continuing Career earners must bridge the gap between now and retirement. The concern is to have a large enough cushion to maximize the package and stay in play long enough to get new employment. If you’re not ready to retire, you may want to keep your job. Once you’re over 40 years of age, it gets harder to land a good jobs. The job market is even tighter for those over 50.
Given this, consider whether you could afford to take a lower-paying position at a new place of employment.
Those who want to switch careers or launch a new business can use buyout funds as a financial stepping-stone.
Thinking of using your buyout to fund additional education? Find out when you can start the application deadline. Many programs close the deadline six months or more before classes begin. It is vital to also assess the market in which you plan to work once you have completed your course work.
Make sure that there is a viable opportunity and considerable pay equality in the field of interest.
2) Health Care
Along with the amount of cash offered, health insurance is a top financial consideration for buyout recipients. If you’re not eligible for Medicare, getting health insurance on the open market can be next to impossible, because almost everyone has some pre-existing condition.
Can your employer contribute to health insurance going forward? If you’re eligible to continue on your employer’s health insurance through COBRA, what will that cost? Many retirees find themselves in a position where the annual payment of their retiree healthcare cost have doubled over the past ten years.
It is vital to calculate and consider the possibilities when it comes to health cost. A good strategy is to visit the past few years health cost trends.
3) Financial Fitness
If your buyout offer gives you the choice of taking a lump-sum payment or payments over time, consider the likelihood your employer will stay afloat. Make sure they can honor what they promise. Remember Enron, we’ve all heard stories of retirees who have had their benefits unplugged. In today’s economy, having cash may not be a bad situation.
An essential component as well is completing a personal budget and debt to income analysis. Create a full accounting of where you are right now and where you will be in 3-5 years.
A MAJOR MISTAKE that a lot of employees make when accepting a buyout offer is they take the funds directly. This will cause a major increase in income and therefore more taxes due at the end of the year. It is vital to open a personal IRA when taking a lump sum distribution.
Take the time to meet with an expert and have them to analyze your needs and project out your cost. Most planners will give a free initial consultation.
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