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5 Points to Consider When Evaluating an Early Retirement Package

​As a wave of cost reductions hit the workforce, more companies are offering early retirement packages this year. More than 10,000 employees across the 60 Japanese listed companies, which is 1.7 times the 2019 total, have been offered buyout packages by September, 14.

Even though many of us have no plans to immediately retire, the concern of being pushed out of the current workplace may continue in the COVID-19 era.

In addition to the long cited factors such as added costs or shortage of management positions for growing senior workers in Japan, or worker redundancy due to technological advances, more firms have cited the pandemic as a reason for taking a voluntary retirement scheme this year. As Takeda, Japan's biggest drug maker decided to provide buyout packages to employees as young as thirty in August, the target group for early retirement extended all age ranges, which is why you must be prepared for the sudden proposal from your employer.

What is an early retirement package?

Early retirement packages are initially announced via company emails or meetings. Employers generally assess the performance of their employees prior to the announcement to decide the target group and number, so your boss may set up a meeting with you to present the severance packages before or after the company’s initial solicitation if you are in the position.   

Example Outline of Early Retirement Incentive Program:

  • Expected number of applicants

  • Eligible employees (particular position, department, age group, or longevity of service) 

  • Special compensation (severance benefit, payment for unused annual leave, or outplacement service offer) 

  • Application period

  • Retirement date

The employees receive details like the above and are given a consideration period of two to four weeks in general. When the number of voluntary retirees won’t reach the expected number, the company may announce the second or third rounds of solicitation, but your buyout may shrink as getting into the next round. With that in mind, here are the five points to consider when evaluating your early retirement package to avoid an impromptu decision. ​

①Evaluate your financial plan and calculate monthly spending

The eligible employees for the deal are typically in their 40s or 50s, coping with the costs of childcare, education, as well as elderly care. There’s no guarantee for anyone to be able to make a quick switch to the next career (on average it takes three to six months for a management position), so analyze if you can secure enough living expenses for the time being. In addition to the buyout on top of regular retirement allowance, you can also claim unemployment benefits to receive early (seven days at the earliest after retirement) and longer (330 days at the longest), without compelling you to accept the offer. On the other hand, the expenses will escalate since the choice of early retirement affects your social security and employee benefits that you have received undermentioned. You need to consider carefully the financial gap you would have paying for the extra costs. ​

②Consider Impact on your Social Security benefits

You will be responsible for planning future coverage of the once-company-sponsored social security benefits(social health insurance, welfare pension insurance, unemployment insurance, and nursing-care insurance). 

As for the medical insurance, whether you apply for the temporary continuation of the medical coverage you had with your employer or switch to National Health Insurance (NHI), you are liable for the whole coverage. You also need to foot the bill for the nursing-care insurance, without the support of your previous company. NHI doesn’t allow family members to join as dependents, so all of those you supported have to participate in the insurance program independently. Chances are your municipal government will support the part of the medical expenses for two years at the longest, so make a request if appropriate. 

The same goes for the employee pension insurance. An early retiree and his family dependents need to pay fully and individually for the national pension premiums until the new employer sponsors the benefits. A prolonged unemployment may cause a reduction in the amount of the employee old-age pension in the future. If you participate in the corporate type defined contribution pension plan, to determine how you manage the funds in the future is also on your to-do list. ​

➂Examine the loss of employee benefits

More or less, you appreciate the fringe benefits that your employer offers. They may include support for housing and living accommodation or discounts, health checkups, professional development assistance or tuition reimbursement, flexible work options, onsite snacks or meals and cafeteria plans, and employee stock ownership plans (ESOPs) or retirement plans, to name a few. Among those, the biggest impact that you receive from your early retirement may be housing support, which directly affects your livelihood. Assess all the brunt including the loss of any additional benefits you have enjoyed during the employment.

Regarding an ESOP, you are generally forced to withdraw from the plan after leaving the firm. With the stocks of a listed corporation, you can transfer them to your individual account either to hold them directly or sell out, while the ESOP rules and regulations for unlisted companies make it imperative for you to sell them to your former employer for a cash-out.  ​

④Check the date of retirement and unused annual leave 

It is not good if you have been out of the job market for a long time. However, when to retire may not be always up to you. A typical early retirement offer includes the retirement datefor the retirees, some of which are completely fixed and others of which offer a choice from a couple of dates. This may sometimes hinder your smooth career move when you can, fortunately, find your next job but find it hard to switch immediately. In this case, negotiation with your new employer as to your starting date may be necessary. 

Also, some companies allow you to receive a lump sum payment for your unused annual leave when you retire, while some don’t. In the latter case, ask your supervisor if you can use some period of annual leave so that it will not interfere with the needs of your transfer. ​

⑤Always know your market value

Generally speaking, you don’t have much time to decide whether or not to accept the retirement buyout, since the companies are prone to offer you a tight deadline in the range of two to four weeks to make a decision. So, one of the relevant to-dos is to keep yourself updated with the market information with professional help like a job change agency. Also, talk to your familyor friends who can supplement your ideas in identifying/renewing your core values in the process of developing your career path. Many employers provide free outplacement services to support your next career move, but considering that a number of early retirees from your previous company start using the same service, it is more efficient to communicate with your partner agency for your success. 

Also, it is very important to assess your job market value accuratelyAsking your partner agency is the easiest way, as they know the industry well and can tell you if your job is currently in demand or not. Your evaluation at the workplace is not necessarily consistent with the professional opinion. If you learn you are in high demand and become interested in another opportunity to advance your career, taking the deal is the right move for you. Looking at the recent surge in calls for job-based employment in Japan, working for multiple firms more likely enhances your chance to develop the desired skill sets and strong attributes than clinging to the idea of a traditional work style. 

If you decide to decline an early retirement offer, consider the impact of not taking it. There must be a reason why your employer provides the opportunity in the first place. Perhaps trying to trim the workforce or restructuring in financial straits, which could lead to your demotion, transfer to another section, loss of motivation, or in the worst case scenario, being laid off. Even if you are lucky, the next package of incentives they offer may not be as generous as it used to be. 

Regardless of how secure you feel within the company, constantly keep the career change option in your mind, especially in a world with uncertainty, so as not to face an impromptu decision. The most essential is to try to develop your career in order to advance your market value.

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