Your boss calls you into his office. He says the company is offering a buyout. He says you qualify. You knew retirement was on the horizon, but now it only a few months away at the most. You are not alone. In fact, United States automotive giant General Motors recently announced that it would be offering voluntary buyouts for 17,700 workers in North America with 12 years of service or more. Many people have taken buyouts and launched into exciting new opportunities or a successful retirement. Your head is spinning at the opportunity but also the uncertainty. What do you do? Here are a few things to keep in mind as you navigate this exciting time.
1. Know when you will retire.
You may want to retire immediately. You may want to work another job or volunteer. The answer is different for everyone. If you plan to retire immediately after your buyout, be sure to have a strong understanding of your household budget. It is important to have a written plan to determine where your cash flow to cover expenses in retirement is coming from. Previously, it appeared in the form of a check form you employer. Now you will likely have to rely on your retirement savings and a Social Security benefit. How much will you spend in retirement? How will you pay for healthcare? These are all questions that have to be answered when you enter what could turn into 30 years of voluntary unemployment (retirement).
2. Determine your Social Security benefit.
Do you know what your Social Security benefit would be if you filed for it today? Do you know what it will be if you wait a year? How about two years? Do you know what your full retirement age is? These are all important questions to answer when you enter retirement. Social Security benefits are designed to cover approximately 40% of the wage that you commanded in the work force. Your full retirement age (FRA) is the age at which you can file for social security retirement benefits and receive a full benefit. Each year after you file before your FRA your benefit will docked an approximate 8% per year. You may also wait to file for a certain number of years after your FRA to have an appreciated benefit, up to age 70. Social Security is an important resource for many in retirement. You paid into it, now it is time to claim what is yours. It may be a good idea to go to socialsecurity.gov to set up your online account to check on your benefits status. The Social Security Administration recently went to paperless for many account statements to cut costs.
3. Know what you will do with your buyout once you receive it.
It is important to determine what you will do with the buyout once you receive it. Will you pay down debts? Will you buy a cabin, a boat? Will you invest the money? Will you live off of the money to delay filing your Social Security to increase your benefit? You may decide to do a combination of all of these things. The options are almost endless, but your decision will likely be important for the success of your retirement. Be sure know what you will be doing with the buyout so it does not sit in a “slush fund” account, not earning much interest or being spent on things that may not benefit your retirement.