6.4 Early Retirement Offers, Severance, and Delayed Retirement

Evaluate the whole exit offer

An employer's early-retirement window may offer severance, pension enhancements, temporary medical coverage, or an incentive to elect retirement by a deadline. The counselor's job is to compare the full household outcome with remaining employed, rather than equate the headline payment with a gain in wealth.

Identify what is guaranteed in writing, what is discretionary, when payments occur, and whether accepting the offer requires waiving legal claims or giving up another benefit. A proposal can look attractive while moving several years of healthcare costs and longevity risk from the employer to the employee.

Build three scenarios

Model at least the proposed exit date, a later planned retirement date, and an involuntary job-loss case if continued employment is uncertain. For each, include wages, saving, employer matching, pension accruals, Social Security earnings, health coverage, taxes, and portfolio withdrawals. Do not assume continued employment is riskless, but do not value it at zero merely because an incentive is available.

A one-time severance payment is not a perpetual income stream. If a client receives $80,000 and needs $40,000 annually from that sum, it covers about two years before tax, inflation, or investment effects. A two-year bridge can be valuable, but it does not finance a 30-year retirement.

Pension and plan timing

A pension offer may add credited service, waive an early-retirement reduction, or provide a temporary supplement. Calculate the benefit with and without the enhancement. A supplemental payment ending at 62 or 65 must be shown separately from the lifetime pension. Compare single-life and survivor options on equivalent terms.

For a defined-contribution account, check the employer-match vesting date and plan distribution provisions. Separating in the calendar year the worker turns 55 or later can preserve the separation-from-service exception for that employer's plan. Rolling immediately to an IRA loses that particular exception, even if another IRA exception might later apply.

Worked cash-flow comparison

Assume an exit offer provides $60,000 severance, paid immediately, and the client expects $8,000 of job-search and transition expenses. For this simplified example, reserve 25% of severance for combined taxes: $60,000 × 25% = $15,000. Available cash after the reserve and transition cost is $60,000 - $15,000 - $8,000 = $37,000. The 25% is an assumed reserve, not a statutory withholding rate.

If ongoing net spending exceeds other income by $3,500 monthly, $37,000 funds 10.57 months at that constant rate. It is misleading to call the offer “a full year's spending” without accounting for taxes and transition costs. Next compare pension changes, health premiums, and lost wages; the cash calculation alone does not decide whether to accept.

Health and family checkpoints

Obtain the insurance end date and the price of any bridge coverage. An employer may subsidize only part of the COBRA period. A spouse or dependent can need coverage longer than the employee. Check whether a new job, Medicare eligibility, or remarriage changes promised benefits.

Review debt payments, emergency reserves, care responsibilities, and the client's willingness to return to work. A forced retirement can coincide with poor markets and a need to sell assets. A flexible work plan is useful but should not assume a new job at the prior salary will necessarily be available.

Legal review of a waiver

For an ADEA waiver involving an eligible older worker, the Older Workers Benefit Protection Act imposes conditions for a knowing and voluntary waiver. Ordinary individual termination agreements generally allow at least 21 days to consider the offer; a group exit-incentive or termination program generally requires 45 days and specified information. There is generally a seven-day revocation period after signing.

These are legal safeguards for particular waivers, not a universal deadline for every retirement election. Refer the agreement to employment counsel and identify the actual deadline. A financial counselor should not tell a client to sign away claims because the net-present-value calculation is favorable.

Delaying retirement has several effects

Working longer can add earnings, savings, employer benefits, and pension service while shortening the period funded from the portfolio. It can also replace a low Social Security earnings year. Delayed claiming after FRA can earn credits only until 70; continuing to work after 70 can still affect the earnings record but does not earn more delayed retirement credits.

Later retirement may be unsuitable if health or caregiving makes work difficult. Compare the financial benefit with physical demands, family time, and the risk of another involuntary exit. For a phased arrangement, document hours, benefit eligibility, pension commencement, and any consulting restrictions rather than rely on a verbal understanding.

Decision record

A reviewable recommendation states which scenario the client prefers, the assumptions that drive the result, the nonfinancial priorities, and the tasks needed before acceptance. Include legal review, pension quotes, insurance enrollment, beneficiary checks, and cash reserves. This transforms a deadline-driven offer into a coordinated retirement decision.

Checked October 19, 2026: EEOC guidance on severance waivers.

Decision checkpoints