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Financial Learning Center


Taking Inventory

Early Retirement–Are You a Candidate?

Most people choose when they will retire. If the date of your retirement is your choice, the timing usually depends on when you want to retire and if you have enough money to live comfortably for the next 25 years or so. In some cases, such as in a corporate takeover or similar business restructuring, you may be forced to retire and the timing is established for you. Your employer may offer you an early retirement incentive package, which you must choose to accept or reject.

Early Retirement—Your Choice

Those who can retire early are generally individuals who systematically saved over the years, invested well, and did not live beyond their means. So, if you've properly planned and have enough financial resources to live comfortably for the rest of your life, early retirement may be for you. Review your sources of retirement income and your retirement budget, and make sure you can afford to retire. Consider the financial implications of retiring early, including medical and life insurance, tax consequences of your retirement distributions, and the effect early retirement has on your pension and your income from Social Security. If you determine you can swing early retirement financially, you must also be sure you can swing early retirement emotionally.

Talk to someone who has retired early to find out what it is like. You need to factor in the psychological factors of leaving the work force. Make sure you are retiring to something. Maybe a business you've always wanted to get involved with, volunteering, or taking up golf. Can you think of at least ten things you would want to do with your time? If not, maybe you're not really ready to retire.

Evaluating an Early Retirement Offer

An incentive package to an early retiree may be a lump-sum payment from your employer, or it might include an increase or acceleration of the amount being funded for you under a qualified pension or profit-sharing plan. You'll need to analyze the offer presented to you to determine if it meets your needs. The key to evaluating an early retirement offer is to estimate the financial impact of staying (if you actually have a choice) versus leaving. Beyond the financial implications, the real question is, do you really want to retire? See the section Retirement Style Checklist in Discovering Your Retirement Lifestyle and determine if you are psychologically ready to retire. Individuals often need help in evaluating an early retirement offer. A financial professional can help you with the financial analysis of this choice.

Financial Factors in Evaluating an Early Retirement Offer

  • What effect will retiring early have on your pension? Is the company offering to add years of service to make your benefits equal to 100% of what you would otherwise be entitled to?
  • If you have to draw upon other retirement benefits (such as IRAs) to make ends meet, what are the financial implications (such as the tax implications and early withdrawal penalties)?
  • Will you have appropriate medical coverage, and who will pay for it?
  • Will you need to apply for Social Security early and receive reduced benefits?
  • How will leaving the company affect your life insurance coverage?
  • What are the tax consequences of receiving a sizable bonus for leaving the company?
  • What are your other current financial obligations? Are you still paying for college? Do you support a parent or have other debts?

SUGGESTION: Negotiate. The company offer may not be set in stone. There may be room for negotiating a better deal.

IMPORTANT NOTE: If you are inclined to leave, think twice about rejecting a package on the chance that the company may come out with a better deal later on. The later offers may be less generous than your current offer.

IMPORTANT NOTE: If you are or were an officer, shareholder or highly compensated person of a corporation, you may be subject to an excise tax if you receive excess golden parachute payments. Golden parachute payments occur if your incentive package arose under a contract with the corporation where you are paid excess compensation because control or ownership of the company has changed. To determine if you have excess golden parachute payments, you should seek help from a financial professional.

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Investment and insurance products and services are offered through INFINEX INVESTMENTS, INC. Member FINRA (Opens in a new Window)/SIPC (Opens in a new Window).  UniVest Financial Services is a trade name of UniBank. Infinex and UniBank are not affiliated. Products and services made available through Infinex are not insured by the FDIC or any other agency of the United States and are not deposits or obligations of, nor guaranteed or insured by, any bank or bank affiliate. These products are subject to investment risk, including the possible loss of value.


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