AN OFFER YOU CAN'T REFUSE?

Many of us have heard the term "down-sizing". Down-sizing incorporations has taken it's toll on the American worker. Manypeople, ranging in age from their late 40s to early 60s, arefaced with very difficult decisions. These middle-aged, middle managers are being asked to consider"early retirement." The offers from their employers may rangefrom lucrative to paltry, but the decisions are difficult inalmost every case. Let's review some of the factors to considerwhen evaluating one of these "offers you can't refuse." There are two levels of concern that must be addressed. First,you must consider the emotional aspects of an early retirementdecision. It is possible, in fact probable, that you neverconsidered retiring today. For many people, especially those intheir 40s and early 50s, retirement is still a hazy goal, faroff in the future. They may not have given any thought to whatthey will do during retirement, whether they will seek otheremployment or any of a myriad of other questions. The offer of early retirement can affect those who choose tostay with the company as well. Will they have the same,hopefully positive, feelings toward their employer andsupervisor? Early retirement programs are often instituted bycompanies undergoing stressful and uncertain times. Stayingaround may seem almost as difficult as leaving. You may beunable or unwilling to make financial decisions until theseemotional and psychological issues are confronted. The other level of concern is financial. Obviously, you have twochoices: do I stay, or do I go? If you choose to stay, what isthe financial health of the company? Should you take the moneyand run? If you stay, what are the prospects for careerpromotions and pay increases? Will staying merely postpone aninevitable career change, under perhaps less advantageouscircumstances? Of course, leaving is also fraught withuncertainty. If you intend to pursue another position, manyexperts have suggested that your job search will last about onemonth for every $10,000 in compensation paid by the formeremployer. Many early retirees become entrepreneurs, so theprospects for a new business and the need for start-up capitalmust be considered. When evaluating the retirement offer itself, there are also avariety of potential pitfalls. Health insurance is a majorconcern for many, so find out whether you will continue to becovered. Employers with defined benefit plans may be grantingadditional years of service or assuming early retirees are olderthan their actual age for purposes of computing their benefit.The employer may also offer some additional benefit to tide theemployee over until age 62 when they can begin to collect SocialSecurity. Tax issues also come into play. Numerous special rules mayapply. For example, those who were born before 1936 may qualifyto use ten-year forward averaging. Those who are 55 or olderwhen they receive their retirement plan distribution are notsubject to the 10% penalty. If you elect to pursue thesubstantially equal payment exception to the 10% penalty, thepayments must continue for the longer of five years or turningage 59-1/2. Of course, this brief article is no substitute for a carefulconsideration of all of the advantages and disadvantages of thismatter in light of your unique personal circumstances. Beforeimplementing any significant tax or financial planning strategy,contact your financial planner, attorney or tax advisor asappropriate.