An Early Retirement Incentive - Is It in Your Best Interest?

An early retirement incentive program (ERIP) is used from time to time by employers to reduce their workforce.

It is basically a program that offers incentives to qualifying employees to retire voluntarily earlier than intended. Most of the time it is a 'softer' approach than an involuntary reduction-in-force lay-off program.

Any which way you look at it, it remains a downsizing strategy. The main purpose of the employer is to save money.

Employers

If you read this page from the perspective of an employer wanting to implement such a program, I can refer you to an article written by Heidi S. Hayden and Diane M. Pfadenhauer. It is a step-by-step guide and discusses numerous aspects around an ERIP. You can download it by clicking here.

I have witnessed such programs implemented at partner companies and from my point of view operations at these companies were unsettled for a considerable time.

An ERIP is usually bad for morale although not as bad as an involuntary lay-off.

An ERIP should be implemented with the utmost care.

Employees

The early retirement offer will sound very inviting. Study it in detail until you understand it fully. Educate yourself as to retirement planning. Visit the various discussions, planners, and calculators on retirement planning on this Website and make sure that the offer will leave you with a retirement income for life.

Keep in mind that an ERIP is a voluntary program. If your calculations don't show a clear benefit, don't accept the offer.

Many ERIPs pay a relatively large lump sum as an incentive at retirement. This lump sum must be applied to augment your retirement account. Consider buying an annuity and more specifically, a Swiss annuity. See our discussion on this subject.

I have witnessed numerous people who used the lump sum to buy some franchise. I have yet to observe one real success story. Please be weary of any franchise opportunity especially if it is in a business that you know very little about.

Visit also our discussion on Taking Early Retirement for more thoughts around this subject.

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