When companies are looking to downsize but would rather not lay off workers, they often offer a corporate pension buy-out (for companies in the private sector) or civil pension buyouts (for those in the governmental sector). Buyouts typically do not offer as much money as early retirement options, but they can still be invaluable to those who aren’t close to retirement. You can often receive annual pension payment buyouts or a lump sum. While lump sums can be rolled over into an IRA (and thus, are not usually taxed), regular payments are typically subject to fees. No matter which option you choose, there are benefits to accepting a buyout, rather than waiting around if your company’s future is uncertain.
1) Eliminate debt.
Although it may not seem fun to use your pension buyout to get rid of back bills, it can be one of the best decisions you have ever made. Debt is like a vicious chronic disease; as long as it is not paid off, it only grows larger and creates more havoc in your financial life. Even if you are paying the minimum or more on your credit cards or loans, interest is accruing each month. This means that the debt is growing all the time, even when you are throwing money at it. By paying off as much debt as you can in one shot, you can ultimately save yourself hundreds or thousands of dollars in the long run. This is especially true of big purchases (like real estate) or items with a high-interest rate (like some credit cards).
2) Finance a college education.
College educations aren’t cheap, and guess what? Financial aid loans also carry interest rates, albeit typically low ones. If you can pay cash for your child’s (or your own) college degree, you can eliminate further debt and start with a clean slate, in terms of credit. Although your child may not realize it now, this is one of the best gifts you can ever give him/her.
3) Make that dream purchase/investment.
Have you ever thought of starting a new chapter in life after retiring? A buyout can help you achieve your dreams earlier than expected. Whether you want to downsize your home and move to a warmer climate, buy an RV and travel the country, or startup that bakery you’ve always wanted, a pension buyout can help you finance those wishes.
4) Pay for an emergency.
As unglamorous as spending your pension sum on an emergency is, it can be a lifesaver. If you or a loved one ends up in the hospital or is dealing with property damage, your pension can allow you to pay off those bills without losing sleep/accruing additional debt.