Have you received an offer from your employer for voluntary early retirement?
If so, you have a lot to think about now. Is the time right for you to retire early? Were you already thinking or wishing to retire early? Or were you expecting to work for many more years?
If you don’t take the offer, will you lose the job later anyway due to further cuts?
Employers may offer early retirement incentives as a way to eliminate staff in a positive way.
Sometimes they will offer to credit you with additional years of service to make you eligible for an early retirement with benefits.
In these times, consider yourself very lucky if you get one of these offers.
If you are younger than age 62, it is important to understand how stopping work now may affect your Social Security benefits later (assuming you qualify.) Your benefit is based on your earnings record over your highest 35 years of work.
If you have zeroes for some of those years, your benefit amount can be affected. It is a complex formula that indexes (adjusts) each year to normalize the results over time. You may decide to semi-retire and work part time from this point to keep social security credits going.
Also, it is critical that you also have health insurance coverage until age 65, so if this wasn’t part of the offer or expected benefits, you will probably want a job of some kind that will provide it until you can afford it on your own or until age 65.
More on Social Security Retirement Age here.
There may also be tax implications to consider. You should consult a financial advisor and a tax advisor to evaluate all aspects of your situation. You may be offered an annuity or pension with an option to take a lump sum of cash. Be aware that if you take a large amount of cash you will pay taxes on it in the year you receive it. You may need to roll it over to an IRA to avoid that.
Consider the Types of Retirement Accounts
If you have a 401k and you are between age 55 and 59, don’t automatically roll this over to an IRA. Consider leaving it in place so that when you leave your job you will be eligible to withdraw from it as needed. At this age, you have that option, but if you roll it over to an IRA you won’t have the option until age 59 1/2.
For more on Early Retirement Withdrawal from 401k accounts.
There are many things to think about, so if you are just beginning to consider these topics, you shouldn’t rush your voluntary early retirement. Give yourself enough time to properly plan.
Have you thought about what you want to do in retirement? Do you plan to travel, start a business, focus on a hobby or get closer to family? Maybe you want to move to another area, like the coast or the mountains. These things may have significant financial implications.
You will need to carefully and thoroughly estimate your expenses and determine whether you will have sufficient income to carry you to full retirement age.
Very Important! Be sure you and your partner discuss your retirement plans.
Each of you needs to understand what the other is expecting during retirement. Your voluntary early retirement may be the start of a whole new adventure!