What Is a Retirement Buyout?

Chris Maurer |

The idea of early retirement is exciting for some and hard to imagine for others. Some companies, however, offer retirement buyouts for longer-tenured employees as they move closer to the standard retirement age. If you’ve been offered an early retirement buyout package, you likely have questions about what motivates the offer, whether it could benefit you, and what options are available. 

Why Do Companies Offer Early Retirement Packages? 

Experienced employees with years of service are incredibly valuable. At the same time, these employees are expensive. Their experience demands higher wages, employer-matched retirement contributions are higher, and they may receive more costly benefits. 

Offering early retirement buyout packages removes high-cost workers from the payroll while rewarding their years of service. This helps the company reduce costs for what would have been their remaining pre-retirement employment. Some organizations routinely offer such packages, while others provide retirement buyouts when the company experiences financial difficulties. 

Do I Have to Accept a Retirement Buyout? 

There are two types of retirement buyouts: voluntary and forced. Forced retirement buyouts are similar to layoffs and your position will be eliminated regardless of your preference. In this situation, your employer will offer some retirement benefits to ease the transition. 

If the proposed buyout package is voluntary, you are under no obligation to accept it. These offers will not provide the same consistency as your paychecks or the same level of compensation. If the offer is not sufficient to meet your needs, passing on it may be a smart move. 

That said, voluntary buyouts can often precede company-wide layoffs and sizable staff reductions. When this occurs and you reject a voluntary buyout, you will receive the same severance package offered to all laid-off employees. There’s a good chance this package may not be as generous as the original offer. 

What’s Included in a Retirement Buyout? 

Early retirement buyout packages vary widely. Sometimes all employees eligible for the buyout will receive identical compensation packages. In other situations, your package may be determined by your position, term of employment, and other factors. Your offer may include: 

  • A number of weeks of compensation at your current rate of pay
  • Additional weeks for the length of your employment
  • Compensation for accrued paid time off (PTO)
  • Limited insurance benefits
  • Re-employment assistance

Your employer should provide full details on all compensation included to help you make an informed decision. 

What about My Health Insurance? 

Some employers include free or low-cost health insurance coverage in early retirement buyout packages. The length of the coverage varies widely, but the most generous offers continue coverage until you are eligible for Medicare at age 65. Other company-sponsored insurance policies, such as life or long-term care insurance, are less likely to be continued. Keep in mind, however, that your long-term care policy is portable, and you can maintain coverage so long as you pay the premiums in full. 

If your employer does not provide healthcare coverage as part of your buyout, you will be responsible for these costs until you are eligible for Medicare. The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows you to keep your current insurance so long as you pay the full premium. You may also be able to purchase an individual plan or shop the insurance marketplace to find a cost-effective alternative until you are 65. 

Is This Age Discrimination? Can I Sue? 

It’s true that some companies engage in discriminatory practices toward older workers. If you believe this is the case, you may have grounds for a lawsuit. However, your retirement buyout package will likely include a release from liability. By signing this form, you waive your right to pursue legal action in exchange for the benefits and compensation received. 

Should I Accept a Retirement Buyout? 

This is a highly personal decision and one you should never make alone. A qualified retirement planner can guide you through the process, evaluate your current retirement outlook and the package offered, and help you make the best choice. Some questions to consider as you work with your retirement planner include: 

  • Will your savings and the package offered allow you to retire early, or will you need another job? Finding employment is difficult for older workers, and your job search may be lengthy. 
  • Will early retirement require you to take withdrawals from retirement accounts? What impact will any taxes and penalties have on your savings as a whole? 
  • Should you take the compensation offered in a lump sum or choose an annuity for consistent payments?

If you opt for a lump sum payout, a financial advisor can help invest these funds to ensure they provide lasting income. 

Learn More About Retirement Buyouts

When your company offers an early retirement buyout package, a consultation with your retirement planner should be your first step. Get the information and support you need when you contact Park Place Financial. Located in Bellaire and serving clients throughout the state, our Texas retirement planners can help you make the most of a buyout and keep your retirement goals on track.