There's a buyout on the table. Are you going to take the package and leave the employer you've worked with for five, ten, perhaps 20 years? Or are you going to stick with the job, knowing full well you could be let go down the line?
There's no single answer to the question, "Should I take the buyout?" Many factors are at play, including the terms of the buyout, your financial situation, and what stage you're at in your career.
For the purposes of this article, we're focusing on voluntary buyouts. Here's a list of five questions to ask before you decide whether or not to accept a buyout.
1. Voluntary buyout vs. involuntary buyout
First, learn the difference between a voluntary and an involuntary buyout.
A voluntary buyout is a large severance package offered to employees for agreeing to leave their job. Companies often offer buyouts as a way of reducing costs instead of laying off portions of their workforce. Sometimes they need to lay off a portion of workers anyway and buyouts are merely the first sign that major changes are coming.
An involuntary buyout is, in essence, a layoff. You don't have a choice in the matter – you are definitely being let go, though the terms of your exit may be negotiable. Negotiating a severance package isn't always easy but it's certainly worth a try if you find yourself in that scenario.
2. What's in the contract?
There are often several components to buyouts, so you'll want to understand exactly what's included in the offer before you make a decision.
The core of a buyout package will be your salary extended for a certain number of weeks into the future, which may or may not include benefits. For example, 10,000 Verizon employees recently accepted a buyout that included up to 60-weeks of salary, plus bonus and benefits.
The benefits portion of your buyout should not be glossed over, particularly health insurance. Career coach Christine O'Neill points out, "It's important to think about health insurance, in general, because it probably only lasts so long. What are some of your options and what's it going to cost you after that?"
If the employer doesn't offer to continue paying their side of your health insurance premiums, you would be eligible for COBRA, or the Consolidated Omnibus Budget Reconciliation Act. COBRA can be costly. Your monthly premiums will be slightly more than the total cost of the premiums in your employer plan, only you'll foot the entire bill. Can you afford that?
Keep in mind that often voluntary buyouts can be negotiated. This goes for the amount of money, the benefit plan or anything else included in the offer.
"Everything is negotiable," O'Neill says. "Your company clearly has an incentive to offer you this package at this point."
3. Can you afford to retire early?
Oftentimes, a buyout is made to someone in a more senior position who is more advanced in their career than the average employee. You may be wondering if you're in the position to take the buyout money and retire early.
Nationally syndicated columnist Ilyce Glink says you should answer that question by figuring out what it's going to cost you to live in retirement. "You have to reverse-engineer it," she says. That means asking yourself what you want retirement to look like. Are you going to live in the same place or move? Do you plan to take on part-time jobs? How much will you need each month for medical expenses? Envisioning life in retirement will help you redo your budget.
Once your spending expectations are set, take a look at your income. You have the buyout, which is often tied to your length of time at the company. For example, you may get one week of income for every year you were with the company. So, if you've been working at the same firm for 25 years, you'll get 25 weeks of pay.
Clearly, that won't be enough to retire on, Glink says, so you need to add it to your other money sources. Do you have a 401k, money in your savings account or an impressive stock portfolio? Combine those with your buyout pay to know what you really have.
4. Are you happy with your job?
Generally, says O'Neill, a buyout comes when a company isn't doing well. So, you may want to ask yourself, how can you spin this situation to your advantage?
"Someone might think, 'This is an opportunity. I've not been so happy in my job. I want to take this time to consider what I want to be doing next,'" O'Neill says.
Some packages even include job-search assistance, in which case you'll have a helping hand as you begin your next chapter. Part of that package may include a personality test that helps you figure out which career path is best suited for you. Unfortunately, few people have access to such services unless they're already in the middle of a potentially stressful layoff.
"[The buyout] could be a boost to you financially," O'Neill says. "It could be an opportunity for you to retire early. It could be an opportunity to take some time off or even give you a chance to start something new."
5. What's the future of the company?
If you're content with your job, the next thing you may want to consider is where you think the company is headed. There are frequently hints as to whether your employer is moving in a good or bad direction.
"Take a step back," O'Neill says, "and consider how the company will be doing in the long term. Do you think there might be future layoffs?"
Oftentimes, she adds, "when you are offered a buyout, it's probably going to be your best offer, and if a next offer comes, it might not be so good—if you get an offer at all."
Have there been many layoffs in the recent past? Have financial reports been indicating trouble for your employer or the industry you work in? Are executives beginning to get tense and competitive? If you see any red flags, consider checking off another mark in the buyout column.
Whether or not a buyout is right for you, it's best to make the decision from a place of confidence rather than fear. If you decide to reject the buyout because you're scared of being jobless, keep in mind you may end up jobless anyway—and with less of a cushion to break your fall.