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الأربعاء، 5 ديسمبر 2018

When Should You Take a Buyout Offer?

At the end of October, General Motors offered buyouts to all salaried workers in North America with at least 12 years of service, while acknowledging that if too few employees accepted the offer, layoffs might be necessary. GM hoped that 8,000 employees would accept the voluntary severance package, but only about 2,250 did — and a few weeks later, the automaker announced more than 14,000 layoffs, including both white- and blue-collar jobs.

General Motors isn’t the only company closing out 2018 with buyout offers. Verizon also announced buyouts during the last quarter of 2018 as part of cost-cutting measures.

Deciding whether the time is right to take such an offer is a complex decision involving many variables and questions, including your age and your retirement preparedness. If your employer offers you a buyout, here are some of the top considerations to keep in mind when contemplating whether you should accept it.

The Age Factor

Age is often the elephant in the room when considering a buyout. But it’s perhaps one of the most important factors because it’s tied to so many other pertinent questions, such as whether you’ll seek another job and continue working. And if you’re not going to continue working, how will you cover healthcare costs until you qualify for Medicare?

“Buyouts affect every individual differently,” says Don Orban, president and CEO of Nebraska-based Midwest Retirement Advisors. “It could be good for someone who is 40 to 45 and can easily get another job and go back to work. It also might be good for someone who is 63 and close to qualifying for Medicare. But I could see someone who is 60 years old being in a little bit more of a quagmire: Do I retire? Do I not retire? Will I be able to get the same type of job?”

If you’re not planning to remain in the workforce, be sure to determine how you’ll pay for healthcare until you reach retirement age and are eligible for Medicare, said Orban.

Mike Windle, planning specialist at Michigan-based C. Curtis Financial, said key ages to keep in mind when offered a buyout are 55 and 59 ½. At age 55, you can access 401(k) funds without penalty, while at 59 ½ you can access an IRA without penalty.

And when considering the age factor, Windle added, don’t forget the challenges of finding employment as you get older. Are your skills still in demand in the job market – and if not, are you ready to learn new ones that are?

“At 55-plus it’s tougher. Employers are thinking long-term as well and wondering how long you’re going to stay around,” said Windle. “Often, it comes down to: What is your skill set, and how marketable is it at your age?”

Immediate Financial Needs and Long-Term Retirement Resources

Conducting a careful budget analysis after being offered a buyout is a critical step. Determine how much of a hit not working will have on your budget, should that be the course you ultimately take.

“Look at your income needs and look at your assets and plan again for the rest of your life, including retirement. And determine whether your current assets can sustain your income needs for the rest of your life, knowing at some point you can turn to Social Security, and at some point you can turn to your IRA income,” said Windle. “Will your current assets provide for rest of your life?”

In many cases, the question really becomes whether you can afford not to work anymore, added Windle. It’s a good idea to talk with a financial professional to sort through such weighty questions — someone who can realistically assess your financial preparedness.

Windle also offered a good rule of thumb when evaluating whether you and your retirement nest egg are truly ready to  sail off into the sunset.

“Figure out what rate of return you need on your assets to give you the retirement income you want,” he suggested. “If that rate of return comes out to something like 12%, you probably need to work longer, because that’s not a realistic rate of return. If it’s around 3%, then you’re in good shape.”

Read the Fine Print

Make sure to read the language of the buyout contract very carefully before signing on the dotted line, urges Orban. This is particularly critical for those who plan to seek other employment rather than retire.

“Does the separation agreement include a non-compete clause, which would prevent you from going to work for a similar company or in the same industry?” asked Orban. “And if there is, how does that affect your long-term needs?”

If you have an attorney, it’s a good idea to have them read through the agreement, added Orban. An attorney may see things you won’t. After discussing the offer with an attorney and a financial advisor, you should have a better sense of the decision you need to make.

Long-Term Game Plan

One question that often goes unaddressed with regard to buyouts is how it will affect your mental health and well-being in the event you choose not to seek other work.

“What are you going to do in retirement? It’s always important to have a plan, not just financially, but what am I going to do with my time, how am I going to structure my day?” said Orban.

Bottom line according to Orban and others, buyouts need to be carefully sorted through, both from a financial and an emotional perspective. It’s a good idea to discuss the various factors involved with key family members, such as a partner or spouse and with a variety of professionals.

“I think for many people, the initial reaction to a buyout is, ‘Great, they’re going to offer me a buyout, I can’t wait to get out of this place,’” said Orban. “But then when it comes time to pull the trigger, it’s not as easy as people think.”

Mia Taylor is an award-winning journalist with more than two decades of experience. She has worked for some of the nation’s best-known news organizations, including the Atlanta Journal-Constitution and the San Diego Union-Tribune. 

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