So, My Company is Offering Me a Buyout…
Detroit – On October 31, 2018 General Motors announced that it is offering 18,000 salaried employees (those of it’s 50,000 salaried employees with 12 or more years experience) a Voluntary Buyout (Voluntary Separation Program) with a deadline of November 19, 2018. Those who take the Buyout and are accepted will begin receiving severance on January 1, 2019.
Companies are always looking for ways to trim costs, free up resources, and position themselves for the future. Occasionally, manufacturing, utility or older tech companies are in a position to offer a buyout of their employees. In recent years these types of separation programs have been offered by Consumers Energy, Chrysler (FCA) and most recently General Motors.
For older employees, it’s a way to accept a cash payment to leave the company and possibly retire. For younger employees, they may still receive a cash payment, but would have the opportunity to find other employment, possibly something they have a better interest in, or at a company where they see better opportunity.
In this post, I’ll cover some of the main things to consider when offered a buyout.
Can I retire?
As an older employee nearing retirement, a company buyout (or Voluntary Separation Program, as it is often called) may be a way to juice your bank accounts if you were planning to retire anyway. Each VSP or buyout is structured a bit differently, but many offer cash payments based on the number of years you’ve worked for that employer. Sometimes these cash severance payments are better than what you’d be offered if your company simply fired you, but that’s something to check in the Company Handbook.
As an example, you may receive one week’s pay for every year of service you have with the company, with a cap on the number of years allowed in this calculation. If you’ve worked for a company 30 years, you would be potentially eligible for 30 weeks of pay, assuming they don’t cap the years.
What you’ll want to figure out is, “if I take the VSP, am I in a position to retire?” You’ll want to look at your investment accounts, any pension you may be eligible for, Social Security you may be eligible to receive, your budget and projected budget and any additional goals you have for your retirement years. It’s entirely possible that you could be retired as long as, if not longer, than you have been working. This is decision is not simply, “okay, my pension and Social Security cover my current expenses, I’m good.” There are many other factors to consider.
Inflation is the big one. It is considered a “silent tax”. It decreases the purchasing power of your money and requires you to spend more over time on the same goods and services. Sure, you may get a cost of living (COLA) adjustment in your Social Security benefits, but that doesn’t always keep up with changes in the price of everyday goods and services you purchase. In fact, as recently as 2016, there was no COLA adjustment on Social Security and in 2017 that COLA adjustment was a measly 0.3%.
Since you’re dealing with possibly the next 30+ years of your life, I suggest reaching out to a fee-only independent financial advisor to guide you in developing a retirement plan. They will not only help you determine if you’re able to retire, but can help you devise a plan for creating income during your retirement years.
Taking a buyout and retiring may be the most important decision you will ever make in your life. You may not want to make that decision alone.
Not ready to retire?
If you’re an older employee and not yet ready to retire, should you take the buyout?
That’s an important question.
If you are planning on looking for other employment are you going to be able to find a job paying something similar to your current salary?
How hard will it be to find a job since you likely have decades of experience?
Experience and age are not always a good thing for potential employers and can be a double-edged sword. The cost reductions that your company is looking to reduce in a VSP is really targeting you…older employees making really good money. They’re looking to shave headcount and costs without having to fire anyone…yet. A prospective employer likely won’t be willing to pay what you’ve been making and so even though you may not be retiring, a good hard look at your financial situation may still be in order.
If the Voluntary Separation Program or buyout is not successful in meeting the company’s attrition goals, older, highly paid employees could be targets for a round of Involuntary Separations (aka layoffs). Planning is key in case you’re faced with that situation.
For younger employees not at or near retirement age, a buyout could be the ticket out you’ve been looking for. Maybe you’ve been bored at work, but the money has been too good to seek other employment. A Voluntary Separation Program may allow you to leave with a nice severance to pursue other opportunities.
Maybe you can find a job in a similar field or a job in a new industry altogether. Maybe this buyout is the kick you need to start your own business. One that you’ve been dreaming about for years. A VSP can be a liberating new opportunity.
Can I retire?
What are my employment prospects?
What are my health insurance options after I leave employment?
What impact will a company buyout or voluntary separation program have on my overall financial plan and goals?
Is my position a potential layoff target within the next 12 months?
These are just some of the many questions to ask as you’re evaluating your situation.
Regardless of what you decide to do, now may be a good time to take a financial litmus test. You can run a basic Chessie Retirement QuickCheck™ by clicking here.
If you’re ready to go more in-depth into your long-term financial picture and consult a professional about your retirement prospects a great way to start is by checking out the National Association of Personal Financial Advisors (or NAPFA) or the XY Planning Network to find a competent, Fee-Only advisor in your area. Members of this organization are fiduciaries 100% of the time and always working in your best interest, not just when it’s convenient for them or just when they’re dealing with your retirement plans. They also don’t earn a commission or other income from third-parties for recommending or selling products to you.
About Chessie Advisors, LLC
Erik O. Klumpp, CFP® EA is founder of Chessie Advisors, LLC and Chessie Tax, LLC. He believes that teachers, engineers, and young professionals should have access to objective, fee only financial planning and investment management to help them create and realize their American Dream. For more information on the services offered through Chessie Advisors, check out our website, contact Erik, or schedule an introductory call.