The scenario: Your employer walks into your office one day and offers you an early retirement deal that you are free to accept or pass up. The offer may look very attractive. It may include very positive sweeteners, such as a large cash bonus, a salary continuation period, extra years of retirement plan participation credit, a lump-sum payment of retirement plan benefits, and/or continuing medical insurance. It can be easy to take the attractive numbers at face value and make a fast decision to accept. That could be a major mistake. And you may not realize your error until it's too late to reconsider.

You will be given time to make your decision. Use that time to pause and carefully evaluate your own financial situation.

Taxes, for instance, are a key question. You need to know both the gross amount you'll get from your company and how much of it will still be yours after paying any federal, state, and local taxes due.

Most lump-sum distributions from tax-qualified retirement plans are also taxable income. However, if you are at least age 59½ and the distribution meets other requirements, you may be able to save by using a favorable averaging option to figure your tax. You will also have a limited-time opportunity to defer the tax on a lump-sum distribution by rolling over the distribution into an Individual Retirement Account or another tax-qualified retirement plan.

Other key questions concern lost income and benefits. Estimate how much income you will give up by not working until your planned retirement age. What part of that lost income does your early retirement offer replace after taxes and the cost of buying any medical insurance or other benefits you lose by retiring early?

Many early retirees continue working-for another employer. If you're not ready to end your career when you get your offer, you need to judge how long it will be before you find something else that's acceptable and how much your new job is likely to pay. If you'll be collecting Social Security, you also need to consider the cut in monthly payments if your benefits start before age 65 or if your income exceeds the annual limit on wages you can earn without losing benefits.

Once you know your realistic retirement income situation, you can compare it to the retirement income you'll need. Don't make the mistake of assuming that you can live comfortably on a lot less during retirement. Financial advisors believe it usually takes from 70% to 85% of pre-retirement income to maintain the same living standard after retirement.

Accepting an early retirement offer can be an excellent move-or not. Be sure you know which it will be for you before you commit yourself either way.

Please call us if you are planning to retire soon and want to know your options. We will help you through the transition.

Emily S Hazlett is Vice-President:Investments at ENB Insurance Agency, Inc. a wholly owned subsidiary of Evans National Bank.