Money Fix: Experts weigh in on whether you should take a buyout

As companies continue searching for ways to stay afloat in this tough economic climate, one option is to offer employees buyouts. If an opportunity arises, should you take the money and run?

That’s a biggie, better take your time and sort through the issues.

See ya later?

There are advantages to grabbing and going. “This could mean the start of something new. If you were almost ready to retire or had been thinking about starting your own company, the buyout could mean a financial bonus to help you reach that next step of your life sooner,” says Joshua Zimmelmann, president of Westwood Tax & Consulting in Rockville Centre.

Then too, “In most cases the deal is sweeter than what might come later. You’re in control of the leave date and moving on is joyous, not traumatic,” says Damian Birkel, founder and executive of the nonprofit organization Professionals In Transition in Winston-Salem, North Carolina.

He’s worked with people wrestling over whether to take a buyout. “An IT manager who had 25 years with a company submitted his request for a buyout earlier in the week and retracted it at 4:58 p.m. that Friday. The deadline was 5 p.m. Monday morning when he came to work at 9 a.m. he was promptly fired at 9:15. He was devastated, traumatized for months,” recalls Birkel.

Say no and you could have regrets later if you lost your job anyway. But that’s not to say you should jump at the offer either.

Mine the details

For sure, it’s complex. “There is no rule of thumb for an employer buyout. The offer needs to be evaluated on a case-by-case basis,” said Daniel Beckerman, founder and CEO of Beckerman Institutional, a registered investment advisory firm in Ocean Grove, New Jersey.

These are not uniform agreements. For example, what will happen to your unvested retirement benefits? Do you have a noncompete agreement that may restrict you from working in a similar job somewhere else? Will you be eligible for unemployment insurance, and will there be some compensation to help cover the cost of health insurance?

“Another option is to consult an employment lawyer. It is entirely possible for some employees to negotiate the terms of their buyout,” says Beckerman.

Look within

Assess your financial situation. “Given the COVID-19 crisis and high unemployment it may not be as easy to find another job as it was last year,” points out Beckerman. Do you have the financial capacity to cover your living expenses through that period of time? Can you cover the cost of health insurance and short-term expenses that may arise?

“Someone close to retirement with adequate savings would be in a better position to accept a buyout offer than someone with many working years ahead of them,” he said.

Joseph Favorito, managing partner at Landmark Wealth Management in Melville says before taking a buyout run a detailed analysis of your retirement projections with a financial planner. “Examine your ability to meet your lifestyle goals throughout your life expectancy. If it looks promising that you can in fact retire, then examine the specifics of the offer,” says Favorito.

If your retirement projections suggest that you have little or no need for the pension income, then you’re most likely better off taking the lump sum as a rollover to an IRA where the funds can be invested for your future, or your beneficiaries future, he says.

Think things through

Be clear about the entire picture. “While the cash lump sum will be nice, federal and state taxes will be due, and the large payment could put you in an overall higher tax bracket,” points out Gary DuBoff, a CPA with MBAF in Manhattan.

Keep in mind too, if you’re in the 50+ club, it can be more challenging to get another job. It may not happen as quickly as you need.

If you’re permanently exiting the workforce early, consider the impact of no longer contributing toward your retirement. This may result in a lower quality of life during your later years.

Says DuBoff, “Consider all options. Don’t let the cash component drive your decision. Don’t make a knee-jerk decision without a financial plan in place.”