Early retirement occurs when an employee decides to retire (leave work) before the age at which he or she becomes eligible to collect retirement resources such as Social Security, a company pension, or distributions from a 401(k) or another retirement plan. Early retirement is an option for employees who have saved substantial financial resources aside from retirement accounts.
Early retirement is also an option for employees who have developed multiple income streams. For example, an employee who works full time, but pursues website development and photography as a second income, may develop the part-time business into a full time career. Or, the employee decides that early retirement is possible because of a combination of substantial savings as well as a second income stream.
Employer Incentivised Early Retirement
Early retirement is also an offer made by employers who seek to cut costs and encourage highly paid employees to leave their employment by retiring early. Usually, the early retirement option is accompanied by financial incentives. The employer reaches its financial targets, when the correct number of employees needed for streamlining the organization and cutting costs, accept the early retirement offer.
Employees who are offered early retirement need to carefully evaluate the employer's early retirement incentives in combination with their own savings and realistic additional income expectations and opportunities. Rarely will the early retirement offer completely fund retirement. Additional options, such as paid college tuition, often accompany early retirement offers, and must also be evaluated in the total equation.
Evaluate early retirement offers with the knowledge that if the employer fails to reach its intended workforce reduction targets, layoffs might result. In a layoff, an employee will generally receive a severance package, but early retirement incentives will not be offered or available.