The recent economic swoon and its impact here in Connecticut have put many people’s retirement plans in a state of flux.
While announcements of downsizing seem to have accelerated this year, especially at The Hartford and United Technologies, those announced layoffs rarely tell the whole picture as many more people are offered packages to voluntarily leave and take an early retirement. If you are in this latter category, do you know what you should do with the offer from your current/former employer? Can you retire or should you secure a new job now? As you weigh your options for this pivotal life decision for you and your family, we encourage you to consider the following:
Even though the job market in Connecticut is healthier than many places around the country, our state’s unemployment rate is still high in absolute terms. An unemployment rate in the mid sevens makes finding a job more difficult as there is more competition for each open position, and also tends to give the bargaining leverage to the employer when it comes to negotiating pay and benefits. Before committing to any compensation package being offered by your employer, especially one that is less attractive than what you may currently make, you should test the market and see what you might be able to command from a new employer.
Further, if you have been offered or are considering taking a retirement package from your employer, make sure you know your current financial situation and how it will work for you in the future. Take the time to sit down and review your financial status to see if you can achieve your retirement goals and live the lifestyle you desire without fear of running out of money. This analysis is much more detailed than simply knowing what your severance salary may look like. For example, would you receive health benefits in the retirement package? If you are pre-65 (and therefore not Medicare eligible) and you are not looking for another job, health insurance is a major issue as buying a private health insurance policy can cost upwards of $15,000 per person per year.
If you are receiving severance/early retirement, you probably will not be contributing to that employer-sponsored retirement plan anymore. That means missing out on any employer contributions or match, which can make a sizable difference over time. Another question to consider is, if you are receiving any stock awards as part of your package, what the vesting schedule looks like and how it might affect your income tax liability.
The most important advice we can give in these critical life-altering situations is to take the time to do your homework. We can help you map out the future, comparing what it may look like if you take the package to what it may look like if you stay working. With these often daunting decisions, information and analysis are on your side and will arm you with the knowledge to make the right choice for you and your family, without having to leave your future to chance.
Denis Horrigan is a partner and one of the founders of Connecticut Wealth Management in Farmington. Reach him at 860-470-0290.
