If you're 5 years from retirement you may be offered an early retirement plan – i.e. an offer of money in return for retiring at an earlier time than you had planned. What should you consider before choosing to accept any particular early retirement plan? First, you want to make create a retirement plan--start with the retirement planning calculator.
You must look at your financial situation, your family's needs, and whether or not you have enough money to finance your lifestyle for the next several years (or are readily employable).
The issues of concern are:
• Evaluating your early retirement plan and stock option issues
• Maintaining insurance for health, life and disability (including long term care)
• Generating income for the duration of your retirement years
Let's look at each issue.
The early retirement plan and stock options
Your company's plan administrator must provide a written explanation of your options 30 to 90 days before the final date on which you must take action. Make it clear when you can start receiving plan benefits, what form they take, and what are the consequences of beginning early retirement benefits early. The tax impact of your alternatives must also be disclosed. With your early retirement plan in hand, head to your accountant or retirement financial planner.
Find out if your employer, as part of your early retirement plan, offers any permanent health insurance for your retirement years. If so, how much does it cost? Employer-provided coverage may end on the day you're laid off or soon after. But, by U.S. law, the Consolidated Omnibus Budget Reconciliation Act (COBRA) allows you to continue your current coverage, including qualified physician, hospital, dental, vision and other medical expenses, at group rates plus a small administration fee. You have a limited time to elect COBRA coverage before it lapses. Note that Cobra is not a permanent option as it could be much more expensive than what you had been paying as your ex-employer will not subsidize any part of the premium.
Life/disability/long term care insurance
Is it part of your early retirement plan? Other than health insurance, no other types of insurance are provided for under COBRA. But your ex-employer may pay it for a month or more as part of your severance pay and benefits, and then offer a continuance option. It usually isn't cheap either; and you may be able to find a better deal. Alternative, you may be able to negotiate for longer coverage as part of the total early retirement plan. But as with health insurance, new private plans may not cover you for previous or existing conditions. Investigate them thoroughly, before you decline your ex-employer's plan. Consulting an insurance specialist is a good idea.
How much income do you need? (Use the retirement income calculator). How will you generate income? Will you qualify for unemployment benefits – and if so, how long will you need to wait before qualifying? Determine other options to work for the duration of the time you expected to work. In fact, because you are usually given some time to elect or negotiate an early retirement plan, you should be able to take interviews and possibly secure other employment before you job ends. or, this may be ther opportunity to start your own business. Your early retirement plan may have some silver linings.