When Does It Make Sense to Take a Buyout?
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Here's your Money Briefing for Thursday, October 8th. I'm J.R. Whalen for The Wall Street Journal. Tens of millions of Americans have lost their jobs during the pandemic, and for many of them, leaving their job was out of their control. But a growing number of companies are offering workers a buyout package, essentially a cash payment to quit.
What are buyout packages and why are companies offering them now?
It's a really complicated decision. And I think each person obviously has to weigh it out. And, you know, there's a variety of factors that can play into it. You know, first of all, the job market. What is the job market like for somebody, not just in general, but for somebody with my skills and my background? How much do I like my job?
And buyouts can have a long-term impact on savings, insurance, and retirement plans. Our retirement reporter, Ann Turgason, will go over the important questions you should ask if you're offered a severance package. That's after the break.
As companies look to reduce staff during the pandemic, more are offering workers buyouts to leave voluntarily. But while a cash payment to leave might sound attractive, it may not be the right thing for everyone. Our retirement reporter Anne Turgason joins me now to discuss. Anne, thanks for being here. Sure. So these buyouts are so-called early retirement packages. You know, they work well for people in high salary positions who are close to retiring. But a lot of times workers across several pay grades get offers.
Well, it just depends on what the company's offering. It's hard to know, you know, from company to company, there can be a lot of variation in terms of what they're offering and, you know, whether they're targeting. I mean, typically they will target a broader population than just, you know, people who have high salaries or they certainly would be unlikely to target people by age, but they might target people by seniority.
So let's say somebody's offered a buyout. Do they have to decide whether to take it right away?
It just depends on how the buyout is structured. But typically, if it's offered to a group of people and it requires them to sign a release, waiving the right to sue under certain laws, there typically is like a 45-day window in which federal law gives employees to make a decision. And then they have seven days after that. If they go ahead and take the package, they have seven days to reconsider after that. But it can, you know, it can vary because employers are free to offer more time.
But taking a buyout can change factors in many equations in someone's life, like their health insurance.
The thing is like 45 days, it seems like a lot, but really sometimes these packages can be, it can be a complicated thing to figure out. So 45 days isn't necessarily a lot. The people who are in sort of the best position to understand the impact on their finances are people who probably already have a financial plan and work with, maybe work with a financial advisor on an ongoing basis, or maybe they have like a, you know, Somebody who they can turn to just for, you know, one-time advice. Because it's important to sort of plug new numbers into your financial plan, if you have one, and try to calculate what kind of impact this is going to have.
Okay, but there's also some other long-term math involved, like how a buyout affects someone's retirement planning and 401k earnings, you know, regardless of how old they are.
Right, exactly. Now you had mentioned health insurance, which is something that definitely people need to investigate. So, you know, if your employer has 20 or more employees, then you are under a federal law called COBRA, you're entitled to remain on the plan. But it doesn't mean that your costs are going to be the same for that health, same health insurance as when you were an active employee, because under the COBRA law, employers are allowed to pass along more of the costs to former workers. Also, if you have a spouse who has health insurance coverage, that sometimes works out to be cheaper, but there are other people who, if they can't go on COBRA, they have to figure out how to get this insurance.
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