Tips for those considering taking buyouts | The Frugalista

Tips for those considering taking buyouts

by frugalista on August 28, 2008

Joe Grimm, one of the top recruiters in journalism, posted this informative financial check list on what to consider when taking a buyout from your job. Buyouts typically continue your regular pay for a set period based on
years of service or pay a lump sum, Joe writes. Joe would know. He recently took a buyout from the Detroit Free Press, where he made his name identifying and nurturing young talent. I’ve known Joe since I was a college cub, and he’s great at his job.

With jobs being outsourced overseas or simply being eliminated all together, it’s worth investigating your financial health.

Here are Joe’s tips:


1. What have I saved and which pots can I tap?

  • IRA (there may be penalties for withdrawal, determined by your age and tax bracket)
  • 401k (you can borrow from your account, but this is dangerous to your long-term financial security)
  • Savings accounts
  • Social Security (payout will depend on how soon you start drawing; statements are mailed annually and can be obtained here). 

2. How much of my income do I need to replace?

  • How
    will my financial needs change in the next few years? Will kids be
    starting college? Will the mortgage get paid off? Do I really need to
    make as much as I make now — or will I need to make more?
  • How
    long can I wait for a new job? (Conventional wisdom is that it takes an
    out-of-work person one month of looking to land a new job for every
    $10,000 in income. If you have kept your skills and network current,
    this could be shortened.)

3. What will I do about health insurance?

  • Does my spouse or partner have insurance that could be extended to me? At what cost?
  • How much would it cost me to extend my health benefits through COBRA? And for how long? (Ask your human resources department.)
  • When will you qualify for retiree health care or Medicare? (Typical age for a healthy adult is 65.)

4. How much debt am I carrying?

  • Mortgage
  • Credit cards
  • Major loans (cars, boats, second homes)
  • Large anticipated expenses (college costs, additional cars)

5. What are the risks of skipping the buyout?

  • Am
    I likely to get laid off? What would the severance package be. (Get
    information from the company and, if you have one, your union.)
  • Will the problems that have forced the company to offer buyouts threaten its future or the future of my specific job?
  • Will there be another buyout? (More conventional wisdom: Don’t wait for a better offer. They usually get worse.)

6. How can I cut costs to deal with a buyout?

  • Will I save anything in taxes? How about gasoline and parking? Will I still need as many vehicles?

7. What about company records about my performance?

  • Ask
    to go through your personnel file and take a copy of recent positive
    evaluations and anything else you might need. Also line up some people
    to be your references.

8. What about the tax implications of all this?

  • Ask
    how taxes will change during the buyout. For example, the end of 401k
    deductions will mean higher taxes. If you are currently a non-resident
    who pays city income taxes, that could stop. If you are being paid in a
    lump sum, you’ll really have to ask about tax considerations and make a
    disciplined spending plan. Consider whether it is advantageous and ask
    whether it is possible to change your number of deductions.


take advantage of meeting with your human resources department, even if
you think the written offer is pretty clear. Do not be afraid to ask
about an offer and then not take it. Get the details in writing.

What is the dollar amount I would get paid and when would I get it?
(Make sure all your service is being counted. Some companies will count
years served at previous employers, if they are related.)

2. Have I accrued any money from unused sick or vacation time?

3. How long would my health benefits be continued? At what cost to me?

4. Will life insurance and disability coverage continue?

5. What will happen with my Flexible Spending Account money? Will I still be able to put money into it?

Will I still be able to contribute to my retirment savings plan? (In
some cases, workers have time during the decision window to contribute
to their 401k’s before the buyout takes effect. This can reduce taxes
by sheltering income in a tax-deferred account.)

7. Will I be
eligible for retiree health care at the end of the buyout period? What
would it cost? (You may have to turn 55 before the end of the buyout
period. You may be required to start paying for that benefit as soon as
the buyout period ends, or lose your eligibility.)

8. What will happen with matching gift programs and tuition reimbursement?

9. Does the company offer outplacement help?

Is my ending date negotiable? (A different date could affect your
qualifying age for some of the retirement benefits already mentioned.)

Are there restrictions about where I can work during the byout period?
(Some companies bring on bought-out employees as consultants; others
say that would nullify the buyout.)

12. If I have a company cell
phone and would like to keep the number, can I take over the payments
and switch the number to a personal phone?

Have you taken a buyout? How did you do? Do you have any tips? Is your company downsizing?

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