Knowing When to Accept an Early Retirement Incentive

Here’s how two retirees decided to take their employer up on the offer

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Financially struggling companies sometimes try to entice workers to give up their jobs with buyout and early retirement incentive packages. About 6,000 General Motors employees accepted buyout offers this month. Yet, it can be difficult to know when to take early retirement and when to try to hold on to your job. A cash bonus certainly sounds appealing at first glance. But retirees can come out behind if their pension payments will be reduced or they lose employer-subsidized healthcare.

Earlier this year I interviewed Linda Chisom, 64, a faculty assistant in Cambridge, Mass., who was considering accepting an early retirement incentive package of one year’s salary and retiree health insurance until she qualified for Medicare at age 65. Chisom, who originally wanted to retire at age 66, told U.S. News in March, “There’s also the possibility of getting laid off in the future, which would mean you don’t get that one-year salary. It feels like going to Las Vegas. You’re just not sure what the outcome is going to be no matter what you do.”

I recently followed up with Chisom and she decided to accept the early retirement offer. “There have now been some layoffs and I think I made the right choice to pick the early retirement rather than to live in a climate of layoffs,” she says. Chisom rolled her year’s salary into her pension, which she will delay claiming until age 65 to get higher pension payments. In the mean time, she has signed up for Social Security earlier than planned and will dip into her savings. Chisom and her fiancé also each sold their own homes and will move into a new house together this month, which will reduce both their expenses. “I’m used to being very frugal,” she says. The couple plans to spend part of the fall traveling. “Working for an academic institution I was never able to take September and early October as early vacation time and I think that is the most beautiful time of year.”

Last year I also interviewed Stephen Fehr, 57, who accepted an early retirement offer from the Washington Post because he already had another job offer lined up. Find out how Fehr managed to set up his ideal situation here. Also, check out these 10 Tips for Evaluating an Early Retirement Offer.