Personal Finance

Early Retirement package

  • Last Updated:
  • Jun 9th, 2020 11:24 pm
[OP]
Newbie
Dec 18, 2006
10 posts

Early Retirement package

I’m 3 months away from hitting 65 and I’ve been offered an early retirement package. It will consist of 1 year of benefits and some kind of financial compensation based on years of service. What are some of the things I should consider in this situation?

Will I be eligible for employment insurance if I accept the package?

What if I continue to work? Will I lose my chance at getting a package after 65?

Is there any value in consulting a lawyer?

Any advice would be appreciated.
6 replies
Deal Expert
Aug 2, 2001
16559 posts
6690 upvotes
You are simply being offered an early retirement package, it's far too early to consider wasting money on a lawyer because this is just a negotiation where you will potentially agree to retire early via certain terms. If your employment is terminated, then it may be appropriate to talk to a lawyer about what you are entitled to.

In many organizations there are limits they place on payouts for these scenarios. For example, some will do one month for every year of service, up to 12 years (so up to one year of pay). Others will simply terminate you and expect you hire a lawyer to fight for it.


To your specific questions:
a) By accepting their package you are essentially quitting your job. You would not be entitled to EI. This is different than someone who is being laid off.
b) If you continue to work after 65 there may come a time where they fire you or lay you off. Your package may look different. You may qualify for EI. There are many variables here and no one can really tell you what to do without knowing your organization, and how they have treated past employees in a similar way.
c) There is no point in talking to a lawyer yet. What is happening is that you are agreeing to an early retirement package and ceasing employment, not being laid off. Therefore there is no legal standard for what you are entitled to since you are essentially quitting. A lawyer would be useful if you want to discuss what happens IF you are laid off / terminated, but I would personally wait until that happens.

Until you know on the financial compensation it is very tough to give any further feedback. Your employer may be very generous (6+ months) or they may be very stingy (1 month). And you may or may not want to continue working. And, if in your area the economy is good, you may be able to easily find another job for similar pay (making your payout "free money") - although at your age this might be tough.
Newbie
May 9, 2018
34 posts
13 upvotes
Congrats, many folks get to retirement and never get offered a package.

-No EI till the package weeks are done (IIRC) when you're inbetween jobs, not sure if anything changes on retirement
-There is no guarantee that you will be offered any kind of package. I've had employees raise there hand and come looking and it hasn't happened.
-Legal doc, never hurts to get a lawyer to look at it (I've had severance twice and lawyer added value on both occasions)

I'm still a few years away but have thought about your scenario and figured if I was close enough with the package $$ I'd take it and enjoy some free time on my former employer.

Best of Luck
Newbie
Dec 11, 2007
39 posts
12 upvotes
London
Some of my coworkers had this option, by seniority, and all went to see their financial advisors due to tax implications. Only one didn't end up taking it due to his being under 60.
Deal Addict
Feb 25, 2007
2467 posts
350 upvotes
you are turning 65 and they are offering you a package, take it!
[OP]
Newbie
Dec 18, 2006
10 posts
Thanks for all your input. The financial compensation is 35 weeks of pay or 2 weeks of pay per year of service. I have the option of taking it lump sum or on a weekly basis. I’m leaning towards accepting it.
Sr. Member
Jan 15, 2015
619 posts
356 upvotes
sayan wrote: Thanks for all your input. The financial compensation is 35 weeks of pay or 2 weeks of pay per year of service. I have the option of taking it lump sum or on a weekly basis. I’m leaning towards accepting it.
A lump sum may be transferred directly to your RRSP if there is enough contribution room. No taxes are deducted at time of transfer, but you will be taxed on the income upon withdrawal.

Government of Canada: Understanding your severance pay...

Since you are turning 65, you should transfer some RRSP assets to a RRIF before December 31, 2020. When filing your 2021 income tax return, you are eligible for a federal tax credit on the first $2000 withdrawn from the RRIF (essentially paying no taxes on the first $2000 pension income), and for each subsequent year after 2021.

TaxTips.ca: Pension Income Tax Credit...

If you choose to receive weekly pay cheques, your employer will deduct income tax from the gross weekly amount. If you were intending to invest most of your severence into an RRSP, the lump sum option would give you more to invest provided you don't need the monthly income. As a buffer, you should apply for your Canada Pension benefits soon, so that they will be paid to you at age 65 (if not already receiving those). If you take the lump sum, check if your employer is still offering benefits like medical, dental, etc., for one year.

You are eligible for EI benefits after the last paycheque provided you do not find other employment. Your employer will also issue a final T4 along with a Record of Employment (ROE) slip which is submitted for EI claims.

Edit: On the pension income item, I think you could still transfer to an RRIF this year, withdraw $2000 in 2020 and claim the pension income tax credit on the 2020 tax return. It's just that taxes would be deducted from the $2000 amount. Some tax might even be partially refunded depending on total income for the year. But at least you take advantage of this tax credit for 2020, which can't be claimed retroactively in the event that you never withdrew the $2000 in the first place.

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