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Key Factors to Consider When Offered a Buyout

By Nick J. Valenti, CLU®, ChFC, CFP®, AIF®

Recently offered a buyout package by your employer? Read on for the key factors to consider when deciding whether to take the buyout.

"Are you ready to retire?"

This is an especially important question which requires you to think about what happens both financially and emotionally if you do retire. Financially, you should be able to analyze your retirement goals, sources of income and the annual cost to fund your standard of living, sometimes called "lifestyle." This will require a cash flow analysis that runs for up to 30-years.

Emotionally, you have worked for many years and in some cases most of those years for your current employer. You should think through how you will utilize the free time that retirement provides. Will you volunteer? Start a new career or business? Or simply enjoy your family and your hobbies? Studies have shown that knowing how you will spend this time is extremely important to your health and to your emotional well-being.

"Should you take the lump sum or monthly income option?"

There are several factors to consider before making this decision:

  • Longevity: There are many factors that should be considered that include, your health and family longevity history. If you are in exceptionally good health and both of your parents lived a long life there is a good chance you will also, which might make the monthly income option more favorable over your lifetime.
  • Estate Transfer: If it is important to you to leave an inheritance to children and grandchildren, the lump sum option may be preferred.
  • Monthly Income Security: If the employer is providing the monthly income backed by the Pension Benefit Guarantee Corporation, the full monthly income may not be guaranteed for life. If the monthly income is being provided by an insurance company, then the security of the monthly income becomes the responsibility of the Insurance company.
  • Social Security: Are you old enough to claim social security and what is the best age to do so? There are a number of options and you should understand how each of them impact you over the duration of your retirement.
  • Standard of Living: Do you know exactly how much money it will take for you to retire comfortably and to stay comfortably retired?

Most Important: A future cash flow analysis will help you gain clarity and confidence about your decision. The answer is not the same for everyone. We recommend that you consult an advisor who is familiar with analyzing the options available to you and who can provide you with a cash flow analysis of each option you are considering.

This analysis will help you make an informed decision that will help you understand the financial impact of each option.

Securities and investment advisory services offered through Royal Alliance Associates, Inc. member FINRA/SIPC. Royal Alliance Associates, Inc. is separately owned and other entities and/or marketing names, products or services referenced here are independent of Royal Alliance Associates, Inc. Branch: 210-998-5000 21811736-20201013.

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