Ford Motor Company recently announced it was launching a voluntary incentive program (VIP) for white-collar employees, which would mostly affect salaried workers eligible for retirement as of December 31.

Many of the automotive companies have offered these types of incentive programs, often called retirement buyouts, to its employees over the years, which is a way for them to remain competitive and profitable.  While these offers are common in the automotive industry, I am seeing an uptick in early retirement offers from other companies as well.

Regardless of a company’s reasons to offer them, it is important for workers receiving an offer to spend quality time analyzing whether the offer makes sense for their situation.  It is also important for them to know that what seems like a voluntary offer at first glance may lead to an involuntary job loss if the offer is not accepted.  Some employees might think holding out for a better offer is a smart strategy, but there is no guarantee a better offer will materialize or be as good.  Therefore, the decision to accept an offer should not be taken lightly and should be given serious consideration.

The following are helpful factors in assessing a retirement buyout offer, assuming one is eligible to receive the offer:

Understand the Specifics of the Offer

Early retirement offers can vary, depending on the company, the number of years you have worked there as an employee, and of course the company’s financial position.  Therefore, it is important to break down the details of the offer and look for the following:

• Is severance pay included and for how long? Severance is an amount that is based on your work history and you may receive a certain number of weeks based upon how long you have been with a company, or it could be based on another formula.  This is normally a one-time lump sum payment.
• Is health insurance included and for how long?
• What are the consequences of not accepting the offer?
• What is the time frame for accepting the offer?
• Do they offer outplacement support or an allowance for job training?
• Are there any changes to your pension benefit if you are eligible to receive one?

Your employer will have people on staff to address any questions you may have about the offer and that is a good place to start for basic questions you might initially have. They will not however, know your entire financial situation and cannot help you with a yes or no answer.  That must come from your own due diligence and what is best for you.

Know Your Stage of Life

Ford’s offer appears to be an early retirement buyout so some of their employees might have worked for the company for more than fifteen years or longer and if that is the case, then those employees would need to determine if this is a good time to retire from full-time work altogether or do they need to continue working.

• How much does it cost you to live each month?
• What are my income sources or future income sources such as a pension and Social Security?
• How long do I plan to stay in retirement?
• How much debt am I carrying?
• If you are under age 65, then you will need to purchase health insurance. If you are age 65 or older, then you will be covered under Medicare.

If you are eligible to receive pension benefits but are too young to apply for Social Security benefits (age 62 is the earliest one can apply for Social Security benefits), then you will need to figure out if you have sufficient resources to stop working altogether.  However, if you do not have the financial means to stop working, then you must consider finding employment elsewhere.

Consult with a Financial Advisor

Many companies provide retirement transition assistance during retirement offers such as Ford’s.  This is a nice benefit, but it may be more helpful to consult with a qualified financial advisor who thoroughly understands retirement planning.  He or she can help you answer the above questions as well as assess your current financial standing for you to make the right decision.

At Bloom Asset Management, we have helped numerous clients assess incentive programs and early retirement packages.  We look at an individual’s entire financial situation, including investment assets, home equity, Social Security options, and other factors.

As an example, even though you are eligible to receive Social Security benefits as early as age 62, it may not make financial sense to do so just because you accepted an early retirement offer.  Do not be pressured to accept an offer just because your employer offers it.

Ignore Co-Worker Decisions

While it may be tempting to compare yourself to that of a long-time co-worker’s decision to accept or reject your employer’s offer, remember that they might accept or reject the offer based upon factors having nothing to do with your own, which is why it is important to understand where you stand financially.

In the end, your decision to accept or reject your employer’s offer should be based entirely upon your own situation and your family’s well-being.  If the offer does anything, it certainly forces employees to look more closely at their financial condition sooner than they might have otherwise done.

For those employees contemplating retiring in a year or so, this decision might be easier than those thinking they need to work longer.  Think about the lifestyle you will have if you retire now.  If you have a health issue that would make working longer difficult or finding another job difficult, then this could be a good opportunity to focus on this part of your life.

In any case, there are important decisions to be made that could impact your life in ways that you might not expect so reach out for professional help if you have any concerns or if your employer cannot answer your specific questions.