You’ve just learned that your academic institution is offering a voluntary separation or early retirement program and you are eligible. Now, with all the thoughts and emotions this brings, you realize — you have a decision to make.
In fact, you have several choices to weigh in on at this juncture – and getting them right can help not just with making this decision, but with determining your financial viability for the months and years to come.
In this two-part blog series, we hope to help you make the important near-term decisions associated with accepting the offer; next, we’ll discuss the tax and investment decisions you can make to stretch those departure dollars as far as possible.
But first, Day One – the opportunity has been presented. In most instances, the decision to extend a VSP has been motivated by cost-cutting, resource repurposing, or just trends in student population. Invariably, the offer includes a significant payout at the end of the transition period; though this likely will be at the end of the academic or calendar year. In some cases, there may be a phased time horizon over multiple years.
This is the time to put the emotions aside to ensure you make the best decision on this opportunity. We have worked with other university professionals who have arrived at this crossroads and successfully navigated this transition. Here are the key considerations, both emotional and pragmatic, that typically shape the outcome:
What Am I Looking For In the Offer?
You may receive a payout offer of between one and two times your annual salary – this is standard and fair. In some instances, you will be able to retain your university health insurance, and in some cases, the spouse also can remain on the policy for an additional expense. Depending on your age at the time of the VSP, you might also qualify for enrollment as a retiree on their health insurance program, which would give you the chance to retain it in perpetuity.
Is This Enough to Retire On?
In our next blog, we’ll talk about how you can take steps from this moment forward in order to ensure you minimize your tax liability and maximize your investment potential from this windfall. One tip we’ll mention now: It doesn’t hurt to ask them to pay the buyout amount after the first of next year, in order to spread out the liability. But more on this later.
When you talk to an advisor who is skilled at serving professionals in higher ed (like those of us here at Briaud), we will look at the totality of your retirement picture. Likely, you have socked away money into your 403b, 457, and other plans. You may also participate in a defined benefit (pension) plan. And we’ll definitely want to look at how this early retirement will affect the calculations for your Social Security payout later on.
Is Any of this Negotiable?
Aside from asking to delay the payout (noted above), these offers are fairly rigid – designed to be fair for all those who are offered the VSP.
I Can’t Help but Think That I’m Not Ready to Retire.
This will be the biggest intangible discussion you’ll want to have with your family and advisors. With so much of your identity wrapped up in your work, you’ll need to figure out how to fill the time with something equally rewarding. While you know full well what you will be retiring from, it is just as important to know what you are retiring to. Hobbies, volunteering and travel are always options, but will they truly fill the time/intellectual gap you may experience with leaving your profession.
Though your VSP likely will preclude full-time employment within your state’s university system, you may have the option of lecturing, or coming back on a contract basis. Of course, if you currently provide consulting or other outside work, you can devote more time to that effort. Long story short – you will have opportunities to continue to keep your academic brain at work. But talk to your advisor to make sure that whatever you choose, you don’t adversely affect your retirement standing or benefits.
If accepting the offer is your decision, it’s time to make sure you protect as much of that nest egg as possible. Stay with us for our next blog, where we dive into the details of sheltering and investing for retirement success.
Are you interested in knowing more about how a Voluntary Separation Program would affect your long-term financial plans? We can help. Contact Briaud Financial Advisors for a free analysis and consultation.
Post written by Peggy Sherman, CFP®. She joined our team in 2007 and has expertise in Social Security and Tax Planning. Learn more about Peggy here.