Op-ed: The pandemic has forced firms to offer early retirement plans. Here’s what to consider before you decide to pack it in

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With so many companies seeking to cut costs to survive the Covid-19-induced economic downturn, many corporate executives are now weighing the answer to a simple question: "Does it make sense to take an early retirement?"

I work closely with corporate executives from a wide range of Fortune 500 companies. These firms have seen their revenues decline in recent months and many are now changing their business model to reposition themselves. One immediate way to improve their bottom line and navigate today's volatile economic climate is to reduce the compensation and benefits paid out to top-tier executives and managers.

Fortunately, many of these companies are providing voluntary exit programs rather than surprising employees with an unexpected large layoff. These early retirement packages can give people more control over the timing of their departure and time to consider whether to participate in the program. If enough people accept the voluntary package, jobs may be spared for those who want or need to keep working.

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Over the past few weeks, I have had some conversations with several of my impacted clients and the overall feeling was that, while these executives weren't planning on leaving just yet, they didn't think they would ever see offers this good come along again.

To that point, nearly all of my executive clients at the Coca-Cola Co. applied for its "voluntary separation program," which includes some major incentives, including at least a year's pay plus a 20% bump. (The Coca-Cola Co. offered this package to about 4,000 employees working for corporate or Coca-Cola North America in the U.S., Canada and Puerto Rico.)

For corporate executives staring at a possible early and unexpected retirement, here are some recommendations to determine if the package you've been offered is the right one for you:

Assess the emotional impact of leaving your long-time employer. While the decision to take an early retirement package is primarily a financial decision, there's more to it. When an executive begins diving into what leaving their job means for their family now and into the future, I usually see a raw, emotional response about the loss of a job — especially if a person has grown up with their company and given 20 years or more of service.

Take time to understand who you will be leaving — many of the colleagues and friends you've known most of your career. As you consider leaving, make a list of people you want to stay connected with for personal and professional reasons once you've moved on. This will somewhat help ease the emotional blow and help build your business network for any future ventures.

Make certain the company provides key incentives. Some companies are tossing in extra incentives as part of a severance package to help make an executive's decision easier.

These incentives include allowing them to continue to participate in the company's health insurance plan, providing extra time to sell company stock grants and a premium on their lump-sum severance payment. You may also want to explore other possible benefits, such as qualifying for a partial year bonus — especially if your separation is near the end of the year.

Run those numbers. Once the severance package is offered, understand its impact on your financial future. If you plan to keep working, will the severance package allow you to fast-forward plans to meet long-term financial goals, such as paying off your mortgage, funding your children's college savings accounts or building a financial reserve to buy that beach house a few years early? Or even better, is this package just the extra bump you needed to hit your retirement number?

For those who need or want to keep working, it is critical not to spend or invest the severance package "windfall" until they secure their next job. The severance payment can help tide them over and allow them to keep paying bills if they don't already have enough cash reserves in the bank.

Make certain your retirement package meets your needs. The severance package should offer enough cash to cover several months or more of your current paycheck. For example, if you would have earned $200,000 annually in pay, a package should ideally offer up at least six months of pay — $100,000 — to make it worth your while and minimize financial hardship.

Ideally, there are provisions to allow an executive to keep most of their stock options and restricted stock grants while forfeiting a minimal amount of the retirement benefits they've accumulated over many years. The longer you've worked there, the more retirement benefits you want to keep as part of your early retirement package.

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When it's all said and done, the most important question to answer is this: "Is this a good deal for me?"

To answer that question, make certain that you will be better off financially if you accept the package and that it keeps your financial plan on track.

Your decision to take a severance package will have a major impact on your financial future, as well as your career. By carefully analyzing it while weighing how to advance your career, you may be able to take a major step in hitting your financial goals. 

— By Lisa Brown, Chief Strategy Officer for corporate professionals and executives at Brightworth

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