Should you take the company buyout offer?

When companies look to cut costs, employees 50 and older are often the target. That's because they are usually the most expensive, in terms of both earnings and health-care costs. Today, many companies dangle attractive voluntary buyout - or "early retirement" - offers in front of older employees as a cost-cutting measure.

For some of us, receiving such an offer is like winning the lottery. For others, it represents an excruciating decision, with the well-being of our family, finances, and future at stake.

Buyouts are not for everyone

Buyout packages are often so generous that even employees who wouldn't have given early retirement a second thought decide to snatch the money and benefits and walk away. Current uneasiness about job security encourages this behavior, and tens of thousands of workers are taking the leap.

At Ford Motor Company alone, 30,000 hourly US workers (40 percent of employees) recently accepted buyout offers and will be gone by 2008. The lure: offers of up to $140,000 in cash or four-year educational scholarships, plus pension and health-care benefits. At Delphi Corporation, more than half of its 24,000 UAW workers accepted buyouts ranging from about $40,000 to $140,000; they will be gone by year's end.

However, no matter how attractive the offer, deciding whether to accept a voluntary buyout offer should be a well-considered personal decision. Two employees with identical ages, positions, and years on the job may have entirely different financial situations.

For example, one might have kids headed for college whereas the other has been through that grind already. One may live in a house that's nearly paid off, whereas the other has a hefty mortgage, two car payments and other debts.

My company recently offered a generous buyout to those of us over 50. Many of my colleagues had planned to retire within the next few years anyway; for them, the offer delivered a gift of unexpected time.

Others agonized over whether to accept the offer. "Suddenly, I was faced with uncomfortable life decisions I had had no intention of facing for years," said one of my co-workers, who had more than 30 years in the business.

I was tempted by the offer, too. Who couldn't use a nice fat wad of cash right about now? But as the main household earner, with a young family and a mortgage, a buyout made no sense for me.

A buyout decision is one you can't and shouldn't make without the help of a financial advisor. Typically, you have a tight take-it-or-leave-it window: between 45 days and two months. So you've got to work fast.

Factors to consider

There is no catch-all advice. But here are several factors to consider when weighing an offer.

1. Do you still need a job to provide income? If so, do you have another one lined up?

   One veteran co-worker who took my company's buyout said his decision hinged on finding another satisfying job, which he did after actively searching for several weeks. "Every Saturday morning, I hammered away at computer job sites," he said. "I also checked want ads in area newspapers. I invested many, many hours in this process. It was boring, deliberate work."

2. Will you need training for a new position? If so, how much will that cost?
3. How about the timing? Are you still marketable?

   Bill Russo, of Concord Financial Planners in suburban Cleveland, Ohio, says that, right or wrong, people 50-plus have a tougher time landing jobs at the salary level they've left behind. "I know too many people who have either given up looking or are doing work for which they are overqualified," he says.

4. Are the job prospects good where you live? If not, are you willing to move? (Have you run that one by your teenage daughter yet?)
5. Does the buyout offer include health insurance? If yes, then for how long? If not, then how much will it cost to insure yourself and your family? Medical bills can quickly chew up what seemed like a huge amount of cash.

   Your health is a huge consideration, says Austin Dean Linden III, a financial advisor in suburban Cleveland. If you have health problems, you might be better off staying put. In some states, it's difficult and expensive to get health insurance on your own with a medical condition. Check your options by contacting a reliable insurance broker.

6. What about your pension? Will the company immediately begin paying it in full? If not, then how many years will you have to wait?
7. Do you have choice about whether to take the money in a lump sum or receive it in installments? If so, is the immediate cash option discounted? Consult a specialist about the tax implications.
8. Does the buyout include a non-compete agreement that requires you to wait a certain length of time before you can work for a competitor? If so, factor that into your calculations; this restriction can cost you money.
9. Is it likely that you will be laid off if you pass up this buyout? It might be better to take something now than to receive much less when jobs are involuntarily slashed.

   "It may also make sense to leave if the work environment is deteriorating to the point that your physical and mental well-being is in jeopardy," Russo adds.

Ultimately, it's your call. Just don't let the big bucks blind you to other realities.