What I Learned From an Early Retirement Package

Over the last few weeks, I have been having a whole lot of conversations about retirement with employees of one of our client companies. They are offering an early retirement package (ERP) to a fairly large number of employees, and they have a fairly short window of time in which to make a decision about accepting it or declining the offer. When retirement is no longer something that has a long term time horizon and is suddenly presented as an immediate opportunity, what is important suddenly becomes crystal clear, and that is slightly different for each person.

I have been able to make some observations on the factors that have driven the decision for most of the candidates for the ERP. It isn’t hugely surprising, but these factors are helping people make one of the most important decisions of their lives. So let’s learn from them so that we can be in a great position to make our retirement decisions with a clear head and on our own time lines. Here’s what I’ve found over the last several weeks:

People with very low levels of debt are much more likely to be able to accept the ERP. The people I met who have paid their mortgage off are, with an almost unanimous vote, accepting the offer and moving on to the next phase of life.

What I learned: I want to pay my mortgage off ASAP! Any debt should be eliminated quickly and you’ll be in a better position over the long haul. When all debt is gone, your embedded cost of living is lower for the rest of your life. That can do nothing but extend the life of your asset base.

The cost of health insurance in the future was a factor in everyone’s decision. Some had a spouse who could cover them or had the ability to roll into Medicare. Others are going to price policies on the exchanges or with affinity groups or simply price policies on a few insurer websites. Those with a clear plan for how to handle the cost of insurance had a very good likelihood of accepting the ERP.

What I learned: In order to prepare for medical costs in the future, I’m planning to max out my HSA annually and invest the account for long term growth, while paying most medical costs out-of-pocket. I plan to keep abreast of the ever-changing landscape of health insurance as well. Recently, we saw significant increases in premiums for health insurance in the exchanges so being aware of the landscape is always a best practice.

The folks who were confident in their ability to land another job before the severance package ran out were also much more likely to accept the offer. With a relatively generous severance package, those who could get jobs relatively quickly could “double dip” for a while. With income from two jobs, they can work on paying debt off or invest a sizable portion of their income.

What I learned: Having an updated resume and refreshing your LinkedIn profile periodically is always a best practice. One never knows when the employment market will turn into the next batch of good (or bad) news, so being prepared at all times is a very worthy endeavor. Keep your contacts organized. Stay in touch with former coworkers, as well as current ones. Use your internal network to help find opportunities.

The lessons I learned over the last few weeks will provide more benefits to me than the benefits I provided to the individual employees. I will consider all of these factors and work to make sure that when the time comes for me to consider retiring, I have all of my I’s dotted and T’s crossed. You should too.

 

 

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