4 Questions to Ask Yourself If You Are Offered an Early Retirement Package, Ep #143

Jun 8, 2020

Ask episode

Chapters

Transcript

Episode notes

Do you know what you would do if your employer offered you an early retirement package? Before you rush into an answer, I have 4 questions for you to consider. Given the present economic climate, this is an important consideration. On this episode, we’ll also talk about survivorship bias and what you can learn from it. Then I answer a listener question about alternative minimum tax and donor-advised funds. Lastly, we’ll discuss 3 different retirement headlines. Don’t miss out if you have been considering taking an early retirement package from your employer.

Outline of This Episode

[1:32] Survivorship bias
[4:21] AMT’s and DAV’s
[6:45] Unlikely to be a social security boost in 2021
[8:53] Retirement savers stayed calm during the market hiccup
[11:05] Delta airlines is offering a buyout package
[14:12] What is the appropriate amount of time to give when contemplating retirement?

What can we learn from survivorship bias?

Survivorship bias can often leave us dead wrong. We often look to the successes to try and learn how to succeed ourselves. This is often because we don’t see the failures. But in failure is where we can find the lessons to be learned. For every Amazon or Apple, there are hundreds of potential ideas that didn’t pan out. Next time you plan for success look to the failures to guide you. Listen in to hear an interesting story of how to learn from failure.

Will a donor-advised fund be excluded from alternative minimum tax calculations?

I don’t often get questions about alternative minimum tax (AMT) so I am excited to share some insight on this one. According to the American Endowment Foundation, there are 5 primary tax benefits to becoming a donor with a donor-advised fund (DAF).

If you are subject to AMT your contribution to a DAF will reduce the AMT impact.
You will receive an immediate income tax deduction in the year you contribute to your DAF. The deduction for a cash donation is up to 60% of AGI. The deduction for securities or other appreciated assets is up to 30% of AGI.
You will not incur any capital gains tax on gifts of appreciated assets.
Your DAF will not be subject to estate taxes.
Your investments in a DAF can appreciate tax-free.

Delta is offering buyout packages to its employees

I recently read an article from CNBC about employee buyouts. Delta airlines is offering a buyout package to its employees since under the conditions of their federal aid package they cannot layoff or cut the pay of any workers until September 30. Those who qualify for early retirement would receive up to 26 weeks of severance, 2 years of medical coverage, and a year of travel benefits. Given the current economic climate, Delta may not be the only large company we see offering buyouts in the coming months.

Tips to consider if you are offered an early retirement package

Have you considered what you would do if your employer offered you an early retirement package? I chose to highlight the article about Delta’s buyouts to get you to think a bit about what to do if you are offered early retirement. Here are 4 questions to ask yourself if your job offers you an early retirement package.

Why is your employer is offering this package? This early retirement package may be a sign that your employer is in financial distress. If you don’t accept the buyout, you may still be laid off later on and the terms may not be as good.
Where will your income come from? While periods of 4-26 weeks like the Delta offers may sound like a long time, they will go by quickly. You may have the opportunity to withdraw from your retirement funds, but doing so earlier than projected may deplete your savings faster than you think.
Where will you get your health insurance? Early-retirement packages typically allow workers to keep their health insurance for a period after leaving the company, but after that, those people are on their own unless they have reached age 65 and can enroll in Medicare.
Is there a good reason to stay put? Your pension may be based on the average of your last three years of income. If you expect that number to rise, you may have a good reason to reject the offer.

Listen in to hear what you should consider when offered an early retirement package and to learn why you might not want to give too much notice of your retirement.