My Company Offered Me a Buyout – Should I Take It?
Category: Financial and taxes in retirement
August 31, 2023 — One of the more common predicaments in the retirement world comes when an organization offers a retirement buyout package to a long standing employee. Many times Topretirements has been asked for advice on this topic, which usually came from someone whose employer is a government entity (state, university, local police department).
Honestly, it is a very tough decision to make, with a number of factors to consider. Ultimately each individual has to make their own decision based on that totality of factors, ideally mixed with input from professional advisors and family members.
Let’s take a look at some of the considerations that come into play when making a decision on when to accept or reject an early retirement package. We hope that those who have been through this process will weigh in with their experiences, lessons learned, and advice in the Comments section below.
- Probably no great deals. The organization offering the buyout is not engaging in charity. Their goal is most likely to clear out older, higher paid employees so younger, less expensive ones can take over. Possibly they are looking to avoid layoffs if business is not good or there are redundancies after a merger. In most cases, looked at from “Present Value”, chances are that the value of the buyout is about the same as if you waited to take your normal retirement (assuming they don’t lay you off first!)
- Are you happy with what you are doing. This could be the most important reason to keep working. Unless you are offered a tremendous deal don’t quit what you like doing.
3. Coworkers and bosses. Another friend contemplated buyout offers for years. Her current boss was a pain and no fun to work for, so that made her want to take the buyout. But then, just as she was about to accept, she was transferred to a new, more agreeable supervisor. That made her realize she would miss the job too much, and so she stayed a year or two longer to maximize her retirement package.
4. Talk with family and friends. A decision to take a buyout is far too important to struggle with by yourself. Talk it over with your spouse or partner. If you have friends with similar experiences or who have financial or common sense, use them as a sounding board. Hashing things out will make it a lot easier to know you are making the best decision.
5. Use a financial advisor or accountant. Professionals in these fields deal with buyout situations all the time. They can evaluate the proposal you have been given to see if it favors you, or the organization. Chances are it is neutral, but they might see something that could tilt your situation one way or another.
6. Can you afford to retire. Taking a buyout and retiring young means you have more years to live without an income, which can be scary. So sometimes sticking it out a little longer gives a chance to put more money into retirement savings. One friend took a buyout because it seemed like the right deal. He was happy with his decision, but then was able to take a short-term government job to boost his pension even a little higher. During that transition period, he explored different ways to make his savings last, including alternative investments. He even looked into offshore casinos, not as a gambler but as an investor, after reading about how some retirees were leveraging passive income opportunities in international gaming markets. While he ultimately chose a more traditional path, the experience opened his eyes to the diverse ways people manage financial security after retirement. So being flexible was good for him.
7. Negotiate. The deal one is offered doesn’t necessarily have to be the deal you get. Talking it over with the employer might mean getting longer health insurance coverage or flexibility about retirement dates.
Bottom line. The decision to take or reject a buyout is complex and requires careful thought and consideration. In the end you will probably make the right decision. One thing to remember is that money isn’t as important as happiness. If you love what you do, don’t quit. If you hate it and there is no escape – jump (you can always find another job you like!)
Comments? Have you had an experience with an early retirement buyout? Please share your thoughts and experiences in the Comments section below.
Comments on "My Company Offered Me a Buyout – Should I Take It?"
Louise says:
I have witnessed this first hand seeing my coworkers offered packages to go. It is usually when they are in their high 50's. Sometimes companies offer different pension packages. Some had 5 or 6 options. One of the favorites was to take a large monthly check that equaled approximately what you could expect SS to pay. Some would collect that check for 7 years till they reached 62 and then that check would go away and SS would begin. I believe they called it a bridge. Other options were a smaller check and that would be collected for the life of the worker and would end when the worker died. Another option was an even smaller check and would continue for the spouse if the worker should die. Some of the packages included health insurance till the worker reached age 65 then the worker would go on Medicare. I know this one individual who took the bridge option and totally regretted it. He had tons of bills and the house was mortgaged to the moon due to sending his kids to private school and college. To supplement income he ended up working in a grocery store part time and a Home Depot store part time. If he had stayed at his job he would have been making so much more money. However, my thought is that if the company offers you a buy out, they want you to leave. If you decline, they could find reasons to fire you and the offer would be off the table at that point. Also, I would check to see if I were eligible for unemployment benefits. Years ago I was laid off from my job and collected a full paycheck for 6 months and another 3 months of half pay and I was entitled to unemployment benefits too. This is when unemployment benefits were extended and I collected for around 72 weeks.
LS says:
Yes, I took a buyout from my agency in my 50's. If I did not, I would have been transferred across the country to the headquarters. My spouse was at that time an executive and earning more than me so a move was out of the question. Fortunately, the buyout offer didn't have a very tight time limit so I had time to find another position with a new agency and didn't have to forfeit any retirement eligibility in the process. Years later, the original agency contacted me and wanted me to return to my original position, which I accepted and later retired from that agency.
Shortly after I retired, my spouse's company was downsizing and offered a buyout but with a 2-week decision timeline. She faced a possible layoff if she didn't accept the offer. She didn't want to leave but it was a generous offer that allowed her additional years credit toward retirement eligibility. We determined that even if she survived the downsizing and continued to work for a few more years, her retirement annuity would be about the same. She would miss out on being able to contribute to the 401k plan during those years but she had done a good job of maximizing her contributions over the years and we would be fine with our two pensions and benefits. She took the buyout and didn't look back.
Paula says:
I took a buyout and it turned out to be a great deal for me. I was 55 and considering retiring anyway with a full pension and was offered a buyout two weeks before I announced my retirement plus received one year salary severance pay, medical for one year and then retiree medical after that. I have never regretted my decision.
Admin says:
Your experiences are so interesting and just the kind of input we were hoping for. Happy that they seemed to work out well for you. Tough decisions, but careful thought will lead you to the right path.
Sandy says:
My husband took a buyout in 1999 at the age of 52. We have never regretted it!
Jennifer says:
My Aunt took a buyout after thirty years with Eli Lilly in Indianapolis. She started with them in High School and they helped finance her college education. She had a lovely and demanding career in Computer Operations and Payroll. She was only 49 years old and had invested well in real estate. She was able to make it work with careful planning. It helped that Eli Lilly paid for all her health insurance until she went on Medicare. They now reimburse for all out-of-pocket expenses she may have medically including deductibles. She had a generous pension as well as other benefits that pharmaceuticals seem to be able to afford like discounts on all Lilly Drugs and outstanding stock options. Needless to say, she took it and never looked back. That was 1993!
toni says:
We were both able to retire "young". Husband in 2000 at 57 and myself at 56 in 2003. We both had full pensions, health insurance until Medicare kicked in, 401K's, stock, etc. from American Airlines and Verizon. But, before we retired we ensured everything, including the house was paid in full and I tracked all our expenditures for a year to get a good idea of what was going out vs what would be coming in....we've been careful with our money since retirement and are still so happy we retired early while healthy.