Early Retirement: What to Consider While Evaluating the Offer

by Sequoia Financial Group
by Sequoia Financial Group

The corporate environment underwent considerable shifts in the post-pandemic world. Cost-cutting, downsizing, and restructuring are more common than ever, as are offers for early retirement. Whether to accept an early retirement package depends on its contents and its impact on your retirement income, taxes, and expenses.

There’s a lot to consider when evaluating an offer for early retirement, including future healthcare coverage, financial independence, and the impact of refusing the offer. Read on for tips on what you should carefully review in an early retirement offer.

Severance Packages

Most early retirement offers include a severance package based on your annual salary and years of service at the company. For example, your employer might offer you one or two weeks’ salary (or even a month’s salary) for each year of service. Ensure the severance package will be enough for you to transition to your next life phase.

Equally important, make sure you understand the payout options. You may be able to take a lump-sum severance payment and then invest the money to provide income or use it to meet significant expenses. Or, you may be able to take deferred payments over several years to spread out your income tax bill on the money.

Pension Plans

If your employer has a traditional pension plan, your retirement benefits are based on age, years of service, and annual salary. You’ll likely need to work until your company’s normal retirement age (usually 65) to receive the maximum benefits. You may receive smaller benefits if you accept an offer to retire early.

The difference between a reduced pension and a full pension could be substantial because pension benefits commonly accrue faster as you near retirement. However, your employer may provide you with more considerable pension benefits until you can collect Social Security at age 62. Or, your employer might boost your pension benefits by adding years to your age, length of service, or both. These types of pension sweeteners are key features to look for in your employer’s offer — especially if a reduced pension won’t give you enough income.

Health Insurance

Does your employer’s early retirement offer include medical coverage for you and your family? If not, look at your other health insurance options, like COBRA, a private policy, dependent coverage through your spouse’s employer- sponsored plan, or an individual health insurance policy through either a state-based or federal health insurance exchange marketplace.

Because your healthcare costs will probably increase as you age, an offer with no medical coverage may not be worth taking if these other options are unavailable or too expensive. Even if the offer includes medical coverage, look it over carefully and understand it before accepting an early retirement offer. Will you be covered for life, or at least until you’re eligible for Medicare? Is the coverage adequate and affordable? If your employer’s coverage doesn’t meet your health insurance needs, you may be able to fill the gaps with other insurance.

Life Insurance

Some early retirement offers include employer-sponsored life insurance. This can help you meet your life insurance
needs, and the coverage won’t cost you much (if anything).

However, continued employer coverage is usually limited (e.g., one year’s coverage equal to your annual salary) or may not be offered. This may be fine if you already have enough life insurance elsewhere or are financially secure and don’t need life insurance. Otherwise, weigh your needs against the cost of buying an individual policy. You may also be able to convert some of your old employer coverage to an individual policy, though your premium will be higher than when you were employed.

Other Benefits

In addition, a good early retirement offer may include other perks. Your employer may provide you and other early retirees with financial planning assistance. This can come in handy if you feel overwhelmed by the financial issues of early retirement.

Your employer may also offer job placement assistance to help you find other employment. If you have company stock options, your employer may give you more time to exercise them. Other benefits, such as educational assistance, may also be available. Check with your employer to find out exactly what its offer includes.

Financial Independence

You can’t just look at the offer to decide whether to accept an early retirement offer. You have to consider your total financial picture. Can you afford to retire early? Even if you can, will you still be able to reach all of your retirement goals? These are tough questions that a financial professional should help you sort out, but you can take some basic steps yourself.

Identify your sources of retirement income and the yearly amount you can expect from each source. Then, estimate your annual retirement expenses (remember taxes and inflation) and plan for your income to be more than enough to meet them. It’s possible you can accept your employer’s offer and still have the retirement lifestyle you want. But remember, these are only estimates. Build a comfortable cushion for if your expenses increase, your income drops, or you live longer than expected.

If you don’t think you can afford early retirement, it may be better not to accept your employer’s offer. The longer you stay in the workforce, the shorter your retirement will be and the less money you’ll need to fund it. Working longer may also allow you to build more significant savings in your IRAs, retirement plans, and investments.

If you want to retire early, making smart choices in the immediate may help you overcome future obstacles. Try to lower or eliminate some of your retirement expenses. Take a part-time job for extra income. Finally, consider electing early Social Security benefits at age 62, but remember that your monthly benefit will be smaller. (See our blog “Know Your Benefits: How Working Can Impact Your Social Security Benefits” for more information.)

Finding a New Job

You may have to accept an early retirement offer even though you can’t afford to retire. One way to make up for the difference between what you receive from your early retirement package and your old paycheck is to find a new job, but that doesn’t mean you must abandon your former line of work for a new career. You can start by determining if your former employer could hire you as a consultant. Or, you may find that you would like to turn what was once just a hobby into a second career. Then there is always the possibility of finding full-time or part-time employment with a new company.

However, job hunting may be terrifying for an employee with 20 years of service with the same company. If you have been out of the job market for a long time, you might not feel comfortable or have experience marketing yourself for a new job.

Some companies provide career counseling to assist employees in re-entering the workforce. If your company does not offer this service, consider looking into corporate outplacement firms and nonprofit organizations in your area that deal with career transition.

The Impact of Refusing the Offer

If you refuse early retirement, you may continue to thrive with your employer. You could earn promotions and salary raises that boost your pension. You could receive a second early retirement offer that’s better than the first one.

However, you may not be so lucky. Consider whether your position could be eliminated down the road. If the consequences of saying no are hard to predict, use your best judgment and seek professional advice. You may have only a short window, typically 60 to 90 days, to decide.


Evaluating an early retirement offer and all the life considerations before deciding whether to accept it can be overwhelming. If you need help determining if the offer will allow you to live a healthy, happy, and productive life in retirement, contact Sequoia Financial Group.

The views expressed represent the opinion of Sequoia Financial Group. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. While Sequoia believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sequoia’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. Past performance is not an indication of future results. Investment advisory services offered through Sequoia Financial Advisors, LLC, an SEC Registered Investment Advisor. Registration as an investment advisor does not imply a certain level of skill or training.