Financial Tips for Taking an Early Airline Retirement Buyout

Whether you work for Southwest, Delta or another major airline, your decision can affect your retirement path.

Airlines have suffered major losses recently, as travel is down by more than 70 percent when compared to last year, due to the pandemic. The travel industry has had an unemployment rate of 51 percent, according to the U.S. Travel Association. A recovery is not predicted anytime soon for airlines either. This has led to the decision for multiple airlines to offer buyouts or early retirement packages to some employees.

Many airlines accepted government rescue funding in the form of grants and unsecured loans through the CARES Act, which requires airlines to not furlough or lay off employees until after Sept. 30. So, in preparation for the expected fall layoffs, some airlines are offering pilots and other long-term employees the chance to leave now with a guaranteed benefits package.

American Airlines offered its first round of buyouts in June and estimates more employees will leave this summer. Delta plans to have its early retirements begin on Aug. 1. Depending on years of service, employees can get six months of pay, plus extended healthcare coverage and flight benefits. Southwest also offered cash in its early retirement packages, along with other benefits like extended healthcare and travel. Southwest also reported that over 17,000 recently signed up for leaves of absence or early retirement packages.

Getting an early start on retirement can actually be a great option with many benefits. If you’re an employee or pilot for Southwest, Delta, American, or United, and you’re considering accepting an early retirement package, what do you really need to know to confidently sign those papers and retire? It is a good idea to discuss your retirement situation with a financial professional and take these important tips into consideration.

Evaluate your retirement timeline.

Whether or not an early buyout is the best financial choice for you depends upon many factors. Your current and future spending need to be taken into consideration, as well as whether or not you plan to get a new job and have income again. A good buyout offer is one that will bridge the gap between when you accept it and when you really wanted to retire. Determining how much you have, what you will need per year, and for how long is critical.

Read the fine print.

There could be an upside to staying put at your job and not accepting the early retirement offer. But with the current environment and little sign of improvement, taking a buyout could be very good option. While companies like Southwest are offering packages that include healthcare and other benefits, some packages do not. Some offer cash and some do not. Although a cash payout may seem like winning a small lottery, it is always important to remember that the company is getting what they want, which is to relieve themselves of your compensation costs. Your package may be negotiable. You’ll want to ensure you’re getting the best package possible in exchange for retiring early.

Rollover your 401k.

If you do decide to accept a buyout and leave your company, one of the first steps you should consider is the potential benefit of rolling over your 401k to your own IRA account. This will give you more flexibility in investment choices, whether you are a do-it-yourselfer or working with a financial advisory team as most 401k plans offer limited investment choices, and some plans have higher fees than others.  Additionally, many employees have a large percentage of their 401k invested in company stock.  This could lead to the potential of big losses that could derail your retirement plans.

Given potential company instability and market fluctuations, deciding to wait before moving the money into an IRA account can cost you. You’ll also need to consider in your decision-making any stock option grants over the years, as well as vesting schedules and other related complexities.

Have an income plan.

If you take a buyout, you need a plan. Even before you get the lump sum check in your hands, consult with a financial professional. The worst thing you could do is start spending without working through exactly what you will do with the money. Calculate your current and future expenses, know when you will take Social Security, and if you will wait, understand what you’ll need to use from your retirement accounts. If you’re younger than 59 ½, you will be penalized for taking money out of a retirement account. The CARES Act provision has allowed for penalty-free withdrawals during the pandemic, but this is only temporary. Planning is the key to making an early buyout work in your favor.

Watch our short video. 

To help with some of your concerns, we recorded a quick video that briefly touches on a number of important considerations.

We have also provided downloadable guides as additional resources for you or someone you may know that has experienced a layoff or uncertainty during this time.

Are you considering taking an early retirement buyout? If you do not take a buyout, it may come at a price of a layoff down the road, and at that time, you may not be offered a robust benefits package. There are lots of things to consider when making such an important decision.

If you would like to discuss your options for taking an early retirement buyout, or if you have already decided to accept one and need an income plan, contact Bayntree Wealth Advisors at info@bayntree.com or schedule an appointment with us speak about next steps.

Bayntree Wealth Advisors provides comprehensive financial planning and wealth management. The Bayntree team specializes in all aspects of financial health, including retirement planning, risk management, investment advice, tax strategies, estate planning and insurance.

Bayntree does not provide specific legal or tax advice. Please consult with your tax advisor or legal professional for guidance with your individual situation.

Sources

  • https://www.cnbc.com/2020/07/20/nearly-17000-southwest-employees-sign-up-for-buyouts-voluntary-leave-as-furlough-threat-looms.html
  • https://www.usatoday.com/story/travel/airline-news/2020/05/28/american-airlines-buyouts-airline-cut-management-staff-30/5272919002/
  • https://www.forbes.com/sites/danielreed/2020/07/02/after-four-months-of-begging-for-employees-to-accept-buyouts-american-airlines-says-it-still-has-8000-too-many-flight-attendants/#3c051f9a7083
  • https://www.reuters.com/article/us-health-coronavirus-delta-air-charge/delta-takes-3-billion-charge-on-buyouts-american-airlines-workers-brace-for-furlough-warnings-idUSKCN24G1AV
  • https://www.ajc.com/business/delta-posts-billion-loss-cites-staggering-pandemic-impact/8XIEEs2ntPd9uWDvuGS8ZK/https://money.com/early-retirement-buyout-advice/
  • https://www.barrons.com/articles/what-to-consider-if-your-company-offers-you-an-early-retirement-package-51587211202
  • https://www.executivewealthplanning.com/blog/retirement-planning-with-stock-compensation
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