Early retirement buyouts are becoming an increasingly popular means of downsizing for U.S. employers. What would you do if your employer offers you a severance package?

Back in high school, being let out early on a school day was cause for celebration. But now that you're working and earning your keep, there may be some drawbacks to being permanently sent home before you're ready.

In January, The Chrysler Group announced that it had offered early retirement packages to about 13,000 hourly wage earners. The News & Observer, a North Carolina newspaper publisher, offered buyout packages to about 200 employees in April. The following month, the Washington Post arranged early retirement packages for 100 employees. Then there are the airlines and automakers. The writing is on the wall: the option of an early retirement is becoming a not-so-uncommon reality.

Nuts and bolts of the retirement package

A typical severance package might include a few weeks of pay for every year you were an employee, plus your unused vacation time. In some cases, the employer might throw in a few months worth of healthcare coverage and career services. If you have pension benefits coming to you, you might have the option of getting those in one big check or in regular recurring payments. An annuity calculator can help you determine which option benefits you most financially.

Evaluating a buyout offer

While it might seem like a no-brainer to take the money and run, your final decision should take into account your age, your current savings balance, and your career opportunities. If you're near your target retirement age and the package gives you the extra dough you needed in your savings account, the decision may indeed be an easy one. Things get more complicated if you definitely have to continue working, either because of your age, or because of an inadequate nest egg.

The job hunt can be particularly challenging if you're in the so-called "middle-aged worker" category. According to AARP, it took workers aged 55 and older an average of about 21 weeks to land a new job in 2007; this was about 23 percent longer than the time it took younger workers to find employment. In rough economic times, employers are more likely to turn away highly qualified, highly paid prospects in favor of younger, less experienced applicants.

Considering the AARP's numbers, you might want to evaluate a retirement package under the assumption that you'll be out of work for six months if you're 55 or older, or four and a half months if you're younger. Remember, also, to budget for your healthcare costs.

Of course, if you suspect your employer may be out of business soon, that bit of information overrides most other factors. It's wise to accept the buyout if there's a strong risk of getting laid off with no package whatsoever sometime down the road. It's far better to be sent home early with a check in your hand than without one.

    Published on August 7, 2008