When to Accept a Job Buyout

It's time for Lee Forsloff to chart her own course. Forsloff has been a flight attendant for 38 years and plans to take an early-retirement package from Delta Air Lines. She wants to retire to her Indian Trail, N.C., home, play more golf and teach children sign language.

Forsloff is among the thousands of workers being offered exit packages as their employers deal with an economic slowdown. So far this year, only Delta and the Big Three auto-makers have announced major buyout programs. But expect more to come, especially from companies in the finance and housing industries, says John Challenger, of Challenger, Gray & Christmas, a Chicago out-placement firm.

If a buyout offer has your name on it, first decide when you want to retire. The severance package -- usually a couple of weeks' pay for each year of service -- may seem like a windfall. But will it push you across the retirement finish line, fund a job hunt or pay for training in a second career? For Forsloff, 60, the decision was relatively easy because she wanted to leave Delta at 62. The buyout provided a cushion for her to exit sooner.

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Taking your lumps. If your employer has a traditional pension plan, you may have to choose between a lump sum and a steady stream of pension payouts. The easiest way to determine which is the better deal is to figure out how much your monthly payout would be if you used the lump sum to buy an immediate annuity from an insurance company.

Compare prices at annuityshopper.com. For instance, a 60-year-old man who bought an immediate annuity for $100,000 would be guaranteed about $609 a month for the rest of his life. A woman in the same situation would receive $577 a month. (Payouts to women are smaller because their life expectancies are longer.)

If the monthly pension payout is more than the estimated annuity check, take the pension. Remember, investing a lump sum for the rest of your life can be difficult -- especially when low interest rates mean smaller annuity payments.

Retiree health care. Health care is the linchpin of any early-retirement plan. Companies have restructured retiree medical benefits, which now cost retirees four to five times as much as active employees pay, says Dale Williams, a Newbury, Mass., financial adviser. "That is a huge burden on an early retiree's cash flow," he says.

Some buyout offers sweeten the deal with health-care incentives. Delta will pay Forsloff's health-insurance premiums for the first three months after she takes the buyout. After that, she will have to pay her premiums until she qualifies for Medicare at age 65. Under federal law, all former employees can continue their coverage for 18 months after leaving a job, but they must pay the entire cost (including the employer's share of the premium) plus a 2% administrative fee.

Healthy people who retire early can buy coverage on their own, but many early retirees with preexisting medical conditions struggle to find affordable insurance. To minimize the hassle, use an insurance broker to help you search, or go to www.ehealthinsurance.com.

If you're rejected by commercial insurers, you might qualify for coverage in a state-run, high-risk pool. Thirty-one states extend coverage to individuals who are otherwise uninsurable, although rates are usually higher than in the open market.