If you are a long-time employee and the company you work for is cutting back its workforce, you may be offered an early retirement buyout package. Companies often use early retirement incentives to urge their older and more expensive workers to leave the payroll voluntarily, allowing those firms to save money by hiring young and less expensive workers to take their place. If you do decide to take an early retirement buyout package, you can still work and earn extra money if you have not yet saved enough to retire fully.
Check Your Early Retirement Options
If you are offered an early retirement buyout package, you may be asked to choose from a one-time lump-sum payment or a series of monthly checks for life. When deciding between these two options, you need to look at a number of different factors, including your experience investing your own money, the amount of those promised monthly payments and whether or not those payments are indexed to inflation. If you take the lump sum, you will have to invest it on your own and make the money last. If you take the monthly payments you can get some additional security, but you lose the access to the lump sum you would have if you chose the other option.
Health Care Considerations
One reason many early retirees return to work is to get access to more affordable health care. Employees of large companies benefit from a larger pool when it comes to health insurance, and that larger pool can result in lower costs and better coverage options. Buying health insurance on your own can be very costly, especially if you are in your 50s or 60s and not yet eligible for Medicare.
One thing to consider when deciding to go back to work is the impact that decision may have on your tax bill. If you choose to work after you are eligible for Social Security, the extra income could cause some, or all, of your Social Security benefits to be taxable. If you do plan to work after an early retirement, run the numbers and estimate your tax bill based on the amount you expect to earn and the money you expect to receive from Social Security, pensions and other sources.
If you have skills that are still in high demand, you may be able to make some extra money doing consulting work in the same industry you just left. In fact, you may be able to consult for your former employer. Many companies look at contractors and freelance workers to give them additional flexibility and cost savings. As a consultant, you will probably not be eligible for company benefits, so you need to work the cost of individual health insurance into the equation when setting your hourly rate.