Thanks to the pandemic, many companies are trying to cut costs as part of a strategy to keep their business alive. These cost-cutting measures can sometimes include paring down their payroll by offering employees various forms of early retirement incentives. This leaves many corporate executives wondering if it makes sense to retire early. So, what are the pros and cons of early retirement packages in Washington, D.C.?
Since many companies have seen a drop in revenue over the past months, they are changing their business models and cost structures. One way to immediately improve the bottom line is to reduce the compensation and benefits paid out to top-tier executives and managers. This can often help a company navigate the current uncertain and volatile economic state.
In some cases, instead of surprising employees with unexpected layoffs, many companies are offering voluntary exit programs. These early retirement packages give people more control over the timing of their departure and time to consider whether to participate in the program. If enough people choose to accept a voluntary package, the company may be able to spare the jobs of those who want or need to keep working.
Early Retirement Packages
The consensus with those impacted seems to be that while most had no plans to leave right now, they didn’t expect to ever see offers this good. Many executives at the Coca-Cola Co applied for its “voluntary separation program”. This program included major incentives such as last year’s pay plus a 20% increase. But, for corporate executives faced with a possible early and unexpected retirement, this may be overwhelming. How do you know if the package is right for you?
First, while early retirement is undoubtedly a financial decision, there is more to it. Assess the emotional impact of leaving a long-term employer. Often, when an executive considers what leaving a job means for their family now, and in the future, its common to see a very raw, emotional response. This is even more prevalent for those who have grown up with a company and given 20 years of their life or more to the service. People often maintain some element of their identity with the company that they have worked for over a long period of time.
People considering an early retirement offer should take the time to truly understand what it will mean to leave the colleagues and friends you have known most of your career. Make a list of the people you want to stay connected with for personal and professional reasons once you have moved on. This can help ease the emotional blow while building your business network for future ventures.
Some companies are offering extra executive benefits as part of their severance packages to help make the decision an easier one. These incentives allow the executive to continue to participate in the company’s health insurance plan, provide extra time to sell company stock grants and a premium on their lump-sum severance payment. You may also wish to explore other benefits, such as qualifying for a partial year bonus, especially if your separation is near the end of the year.
Once a severance package is offered, ensure that you understand it’s impact on your financial future. If you plan to continue working, consider whether the package allows you to fast-forward plans to meet long-term financial goals. Can you pay off your mortgage? Fund a college savings account? Buy that vacation home you have your eye on? Even better, is this package what you needed to hit your retirement number?
For those individuals who want or need to keep working, it is essential that they DO NOT spend or invest the severance package windfall until their next job is secured. This severance payment can help you survive and continue to pay bills if you do not already have cash reserves in the bank.
Consider Your Needs
Finally, make certain the retirement package is suitable for your needs. It should offer enough cash to cover several months or more of your current paycheck. If you would have earned $200,00 annually in pay, a package should ideally offer at least six months of pay ($100,000) to make it worth your while and minimize any financial hardship.
Pros and Cons of Early Retirement Packages in Washington D.C.
It all comes down to whether the package is a good fit for you and your retirement plans and financial obligations. Will accepting the package make you better off financially? Will it keep your financial plans on track? It’s important to understand that a severance package will have a major impact on your financial future and career. Be sure to carefully analyze your options before advancing. Speaking to the professionals at Argent Bridge Advisors may also help you make the best decision.