5 things you can negotiate in an early retirement package

Consumer Reports

During the recent economic downturn, cost-cutting, restructuring, and downsizing were the norm. Microsoft’s recent announcement that it will lay off 18,000 workers over the next year shows that it can still happen today, and in a big way.

Today many employers are “flattening” their corporate structure, which means they don’t need as many senior people as they used to, says Alan Sklover, a New York City attorney who represents executives with compensation, transition, and severance concerns. Some companies are using the less savory tactic of giving good employees poor performance reviews to get them to leave, he says. But others are offering early retirement deals.

If one of those packages crosses your desk, it will probably include such enticements as an enhanced pension, a cash payment, and continuing health care coverage. But even with those sweeteners, it can be difficult to know whether to take it or to try to hold on to your job.

Start the decision-making process by taking a hard look at your company and its financial strength. If you think it’s sinking in a way that will lead to layoffs, the package is probably the best deal you’re going to get. But if your company is relatively stable, you might want to stick around. You’ll have more time to save for retirement and fewer years to live off your retirement assets. To gauge your value (and the likelihood of a layoff), talk with your boss and others in senior positions with whom you feel comfortable.

Let’s assume you’re inclined to take the offer. Find out what you’re entitled to, which should be in writing. Then decide what else you’d like. “These deals might not be quite as generous as they were in the past, so it’s more important than ever to try and negotiate a better deal if you can,” says Alan Johnson, president of the New York City compensation consulting firm Johnson Associates.

Employers have to be careful not to discriminate when they offer a deal to a group so you’re less likely to negotiate better terms if hundreds of people have received the same offer, says Bedda D’Angelo, a financial planner in Durham, N.C., who has steered several clients through this process. But you won’t get more if you don’t ask.

The expert advice in our Retirement Guide will ensure that your retirement is as financially secure and satisfying as it can be.

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Your pension

If you have a defined benefit plan (one that will pay you a set amount periodically), your benefit is probably based on your age, years of service, salary, and another multiplier, such as a percentage. You must usually work until your company’s normal retirement age to get the maximum benefit, which means you might receive less if you take an early retirement deal. The difference could be significant, because pension benefits usually accrue faster as you near retirement. Good offers will boost your pension benefits by making certain adjustments. “If you’ve been with the company for 18 years, it may change your length of service to 20 years,” Sklover says. “And it may say, ‘Even though you are only 61, we’ll consider you 65 for retirement purposes.’”

Health coverage

Cadillac packages offer continued coverage, either by letting you stay on the company’s plan until you’re eligible for Medicare or by giving you its retiree health care coverage. Or it might pay all or part of the cost of COBRA benefits, which last at least 18 months and would otherwise come with a steep price—up to 102 percent of what your employer pays for your health insurance.

Extra pay

Good early retirement offers include a one-time cash benefit and any severance pay you’re entitled to. So, for example, you might receive four weeks of severance pay for each year of service, plus an additional six months to a year of regular pay as a cash bonus, says John Challenger, CEO of Challenger, Gray, and Christmas, outplacement consultants.

More perks

Your deal might include a continuation of employer-sponsored life insurance. But the time frame is usually limited, often just one or two years. If you don’t need the coverage, ask for the equivalent in cash, Sklover suggests.

One increasingly common benefit is financial-planning help. That can come in handy if you feel overwhelmed by all of the financial concerns that early retirement brings, and it can help you decide whether you need to keep working. Your employer might also offer job-placement assistance. If you have company stock options, you may have more time to exercise them. Will new skills help you land another job? Ask for tuition assistance.

Possible postponement

One easy and often overlooked way to sweeten any deal you’re offered is to ask for it to take effect at a later time. Working an additional six months or a year will give you more time to save for retirement and figure out your finances. It could also boost your severance pay and give you more time to land another job if you need one. “Human resources might say no,” Johnson says, “but you probably don’t work for human resources, so talk to your boss about staying on a bit longer.” Also consider asking for a part-time or consulting position.

Mandy Walker

This article also appeared in the June issue of Consumer Reports Money Adviser.



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