As companies look for ways to downsize and cut costs, some workers are finding themselves on the receiving end of early-retirement offers.
These plans may offer, singly or in combination, a lump-sum payment, additional or enhanced pension benefits, health insurance for a certain period and a "bridge" until Social Security kicks in. Normally, the offer is good only for a limited time, or "window."
Financial experts say employees should consider a number of points before making a decision, especially under deadline pressure.
"Early retirement is not for everyone, but there's the fear that if they don't take it, they'll be released anyway," says Shirley Waldrum, a senior program specialist with the American Association of Retired People.
"A lot of people either don't ask the right questions or don't know the questions to ask," she says, adding that many are enticed by the one-time severance offer. "That lump sum of money isn't that much when you spread it over a number of years. If they don't have good financial planning, they can be broke in a very short time."
"I know that when many people are offered early retirement they jump at it," agrees Patricia M. Tengel, a family resource management specialist at the University of Maryland Extension Service. Too often, she says, people don't know enough to make a sound decision.
While financial experts strongly recommend that people consult with their own accountants, lawyers and/or financial advisers about their specific circumstances, they do flag some points to consider in deciding whether to accept an early-retirement package:
* Know the provisions of your pension plan.
"A lot of people think once they retire that their benefits will start," says Waldrum. "That's not necessarily so."
Find out when you would begin getting benefits, and how much. You need to know if the benefits being offered for early retirement are the same or less than would be paid at normal retirement age.
For instance, as an incentive, companies that normally pay early retirees a lower monthly benefit will offer the full amount. Or some will give bonus years -- such as adding five years service to the 20 you actually worked for a total of 25 -- for the purpose of calculating your benefit. Some provide a "bridge payment" until the recipient is old enough to collect Social Security.
In addition, if you intend to get another job, find out if and how that can affect your pension benefits.
Make sure you know what your plan provides for your spouse if you should die.
Read the summary description of your pension plan, known as a Summary Plan Description (SEP), that a company is required to distribute to all plan members.
"Ask your personnel officer to thoroughly explain the implications of your plan," advises Tengel.
* Find out what your Social Security benefits will be.
Get a Personal Earnings and Benefit Estimate Statement from Social Security. You need to fill out a request form that can be obtained by visiting a Social Security district office near you (in the blue government listings of the Yellow Pages) or you can write to Consumer Information, Dept. 55, Pueblo, Colo. 81009 and ask for a Personal Earnings and Benefit Estimate Statement request form (Form SSA-7004). You can not call local offices; Social Security operates a nationwide toll-free number to handle all inquiries: 1 (800) 234-5772 from 7 a.m. to 7 p.m. (Getting through is not always easy; for non-emergency requests, officials suggest calling between 7 and 9 a.m. or 5 and 7 p.m. Also, days later in the week are better than at the beginning of the week, and days later in the month are better than the start of the month.)
It will take four to six weeks to receive the report, which lists all the wages reported for you since 1950. Make sure it's correct. The report also will estimate your benefits for retirement at 65, or earlier if you request it.
You can begin to draw Social Security at age 62 and one month, but monthly benefits will be permanently reduced by 5/9 of 1 percent for each month prior to age 65. At age 62, the reduction amounts to 20 percent.
If you're between 62 and 69 and plan to get another job, be aware that earnings above certain thresholds will cut your Social Security benefits. This year, those under 65 will see their benefits reduced $1 for every $2 earned above $7,080. For those 65 through 69, benefits will be cut by $1 for every $3 earned above $9,720. At 70 and above, there is no reduction.
* Estimate how much income you will need to maintain your standard of living.
"You've got to look at your own living expenses," says Alan B. Fabian, compensation practice leader in the Baltimore office of Arthur Andersen & Co., one of the Big Six accounting firms.
You need to figure costs in major categories such as housing; utilities; food; transportation; clothing; health care; insurance; taxes; recreation and travel; savings and investment, gifts and contributions; and personal costs, such as hair care, newspapers etc.