Buyout bonus, early retirement: To stay or go?

Taking a buyout, says financial planner Arthur Stein, will make sense for some but not for others. He explains how to tell which camp you might be in.

By Suzanne Kubota
Senior Internet Editor

Agencies like the U.S. Postal Service and the Federal Trade Commission are offering buyouts and early retirements. And others, like the Air Force, are trying to engage employees interest in these types of things.

Certified financial planner, Arthur Stein told Federal News Radio, consider the offer very carefully before accepting. “It’s going to make sense for some people, but not others, and I think it will not make sense for most people.”

Stein offered two example cases to think about.

He said it might make sense for a CSRS employee who is already eligible for an 80% annuity. If they make $100,000 a year, they could retire a year early, said Stein. He explained that while they’d lose $100,000 salary, they would receive the $80,000 annuity. They would leave them $20,000 short for the year and a $25,000 buyout would make them whole. But, cautioned Stein, there are “probably not many people in that situation.”

Stein said to then consider a FERS employee, also making $100,000, who is eligible for 20% annuity. The $25,000 buyout bonus would leave that employee behind about $50,000. “Plus you might have had to start Social Security earlier. That’s a loss because you lose out on the bonus they give you for postponing taking payments, you didn’t get your 5 percent TSP match during that time.” Finally, said Stein, it’s “not a great time” to be looking for work in the private sector to make up for the loss.

The basic calculus for the decision, according to Stein, is to look at how much less you’re going to make during the year because you retired early, then figure how much you’ll have coming in from your annuity and look at how much a $25,000 bonus would do to make you whole.

“I would not be recommending it to many of my clients,” said Stein. Considering a tough economy, and that the federal pay package and benefits are attractive and secure.

If the buyout is to forestall a RIF, “you’d be better off waiting.” Stein said, “you can think of it kind of simply. If they walked in and said, ‘Listen, $25,000 dollar bonus to retire today or we’re going to RIF you in three months,’ okay, maybe you take that $25,000,” said Stein. But if they said a year, “I’d say work the extra year.”

“$25,000 just is not a lot of money. It wasn’t a lot of money in the 90s when they first started offering $25,000. It’s even less money today and I just think it’s not an attractive offer unless there are unusual circumstances.”

As always, if there’s any confusion about what to do, see your financial advisor.

For more from the Office of Personnel Management on the Voluntary Early Retirement Authority, see the OPM website.

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