Every now and then companies offer early retirement plans for their employees when downsizing becomes necessary due to economic slowdown or due to other financial crisis. Although the early retirement plan may look attractive, it is essential to make sure that you will be financially strong enough to support yourself for the rest of your life. You must carefully analyze the plan before you decide to choose one.
Here are some important tips for people who are going to sign early retirement contract.
Calculate the financials: Compare the financial incentive being offered by employer with your total earning that you will receive if you had stayed at your job. Many people who leave job under the company sponsored early retirement plan later find it hard to manage their livelihood. In early retirement plan, pensions are calculated on the basis of your earning during your last few years on the job. If your earning years are counted less, then it will obviously affect your monthly pension.
Cover your expenses: When you retire early, you need to have a plan for paying expenses for 30 years or more in future. If you are paying monthly installments for your apartment or house, the retirement plan should provide enough to cover all your installments going into the future.
Find healthcare: Ensure that your early retirement plan provides health insurance cover if you are younger than 65 years of age and can’t yet qualify for Medicare. If your early retirement plan does not include health insurance, consider COBRA continuation coverage, which generally lasts up for 18 months, and if possible also try to include your spouse under the same coverage.
Factor in social security benefits: Social security payments are calculated on the basis of average salary that you earned during 35 years of service. Retiring early means losing out on having another higher earning year factored into the calculation of social security benefits.
Consider taxes: It is better to consult your accountant or financial advisor whether to take the payout as lump sum or a monthly check as this will effect your tax liability or your child’s eligibility for college financial aid.
Read the early retirement contract carefully: Carefully read the contract before signing and have an attorney or financial advisor look over it if you have any doubts. The professional will assist you in analyzing your needs and requirement and will give you a hand in formulating your plan. You also may be asked to give up the right to institute legal proceedings against the company or employer for discrimination, overtime or biased payment.
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