Golden Handshake Decision Calculator
Use this calculator to compare the benefits of taking the Golden Handshake versus continuing to work for a few more years. Below are the input fields with descriptions to guide you.
Enter your total salary before taxes that you currently earn annually.
This is the upfront payment or severance package offered to you as part of the Golden Handshake.
This is the additional amount from the Golden Handshake that will be received until you retire.
The number of years remaining before you plan to retire. This will affect your long-term income projection.
Enter the amount you expect to receive annually after retirement, such as pension or Social Security benefits.
Your current income tax rate. If you are not subject to income tax, leave this field at 0.
Tax rate applied to the Golden Handshake amount.
Estimated percentage return on investments. This affects how much your Golden Handshake grows over time if you invest it.
Estimated rate of inflation. This is used to adjust the future value of money to reflect inflation's impact.
Estimated annual cost for healthcare after retirement.
The rate used to calculate the Net Present Value of the monthly salary. Typically based on your investment return rate or inflation rate.
Explanation of the Inputs
The following inputs are necessary for the early retirement decision-making process. These values are required to calculate and compare the financial impacts of retiring now versus working another year:
Current Lump Sum
- Description: This is the total amount of money available in the individual’s retirement savings or pension plan. It’s the sum that could potentially be cashed out or transferred if the person chooses to retire now.
- Why It’s Important: The lump sum is a key factor in determining the amount of money available for early retirement. Retiring sooner could affect the amount due to interest rate fluctuations or employer policies, so understanding the lump sum now helps assess the financial situation.
Annual Salary
- Description: This is the income the person currently receives on an annual basis from their job. It’s used to estimate how much the person will earn if they choose to continue working for another year.
- Why It’s Important: Continuing to work for an additional year provides the individual with an income. The salary contributes to the overall financial stability, and it could affect the decision if the person is financially dependent on their salary for future retirement plans.
Estimated Lump Sum Drop (Percentage)
- Description: This is an estimate of how much the lump sum will decrease in value if the person delays retirement for another year. It could be due to factors like market performance, interest rates, or pension plan adjustments.
- Why It’s Important: A drop in the lump sum is a key factor in deciding whether to retire now or delay retirement. If the lump sum decreases significantly over time, the individual may prefer to retire sooner to lock in the higher amount.
Early Retirement Incentive
- Description: This is a special benefit or payment offered by the employer to encourage the individual to retire earlier than planned. It could include bonuses, severance, or other perks for retiring before the official retirement age.
- Why It’s Important: Early retirement incentives can significantly improve the financial package for a retiree. They provide immediate financial benefits that may outweigh the drawbacks of retiring early, making them a strong consideration in the decision-making process.
Estimated Health Insurance Costs After Retirement
- Description: This is the anticipated cost of purchasing health insurance or maintaining coverage after leaving employment. Health insurance premiums can be higher for retirees, especially before they qualify for Medicare at age 65 (in the U.S.).
- Why It’s Important: Health insurance premiums often increase for early retirees, and this cost can affect the overall financial stability after retirement. Estimating these costs is crucial to understand the additional financial burden that comes with retiring earlier than planned.
Estimated Reduction in Social Security Benefits Due to Early Retirement
- Description: If the individual chooses to retire early and claim Social Security benefits before the official retirement age (typically 62 or older), the monthly payout will be reduced. This reduction could be permanent depending on when benefits are claimed.
- Why It’s Important: Claiming Social Security early reduces the monthly payment received, which can have a long-term impact on overall retirement income. This reduction must be factored in when deciding whether early retirement is financially viable.