General Motors, Ford and Chrysler have been offering as much as $140,000 to tens of thousands of workers willing to give up their jobs. Automakers aren’t the only ones paying employees to not show up. Many other companies have “bribed” employees to quit in recent years. And the pace of such offers may pick up if the faltering economy doesn’t. Companies provide these “buyout offers” and “early retirement packages” to trim their payroll, pension and health-care obligations without resorting to layoffs. How to decide whether to accept…

EVALUATE YOURSELF

Even before you analyze the financial details of the buyout offer, ask yourself…

  • What do I want to do with the rest of my life? Have you always dreamed of trying a different career… working for a different company… moving to a different part of the country… or retiring early? A buyout offer might be a great opportunity to do so.
  • How employable am I? If you’re confident that you could find a good job fast, accepting the buyout probably makes financial sense. But if it appears that finding an equally or more attractive new job will take a long time or require a relocation that you and/or your spouse would dread, you may want to reject the offer.
  • Am I financially ready to retire in the manner I desire? If you consider a buyout your ticket to early retirement, first make sure you have enough money saved to never work again.
  • EVALUATE RISKS OF STAYING

  • How financially secure is my company? If there’s a significant chance that your employer might soon go out of business or be forced to implement large-scale layoffs, the buyout might be a smart way to exit the sinking ship. Consider what may happen to your job.
  • Will there be future buyout offers? And if so, might their terms be less attractive?
  • Will your job change? A shrunken workforce may mean more work or less desirable work.
  • EVALUATE THE OFFER

    Not all buyout offers are created equal. Important considerations…

  • Do I get to keep my health insurance? This is a vital issue unless you are eligible for Medicare or have access to an affordable insurance plan through another source, such as a spouse’s employer. Individual health insurance policies can be prohibitively expensive. This may be enough reason to reject the buyout.
  • How will my pension be affected? If you have a defined benefit pension plan, which promises specific monthly benefits at retirement, the size of your pension is likely determined in part by the number of years you have been employed by the company. In some buyouts, employers agree to add a few years to service time in pension calculations. If not, it may pay to stick around.
  • Important: If you have a defined contribution pension plan, such as a 401(k), your pension should not be a major issue. You can simply roll over your retirement savings to a new employer’s retirement plan or into an IRA.

  • Is there a lump-sum option, instead of a series of smaller payments over the coming years, and if so, should I take it? The lump-sum option might push you into a higher tax bracket in the year of the payout and thus create a larger total lifetime tax bill—but the option may be the prudent choice if there’s any chance that the company could go bankrupt before you receive the last of the deferred payments.
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