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What Is Voluntary Retirement?

By Jason C. Chavis
Updated May 17, 2024
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Voluntary retirement is a policy by which employees of certain firms can choose to retire from the job earlier than standard practice in order to collect retirement benefits. Many businesses offer retirement benefits for their workers. By offering voluntary retirement, a certain segment of their workforce chooses to retire before the standard time, usually when the person reaches his or her 50s or early 60s. With this type of retirement, most firms provide a package which is less substantial than if the employee were to wait for the full retirement age. This is beneficial to the business by keeping the rotation of workers moving as well as implementing savings by ultimately paying out less money to its former employees.

Another way voluntary retirement is used is during tough economic times for the company. Sometimes during periods of recession, a company is forced to lay off some of its workers. In order to mitigate this impact on a larger volume of its workforce, the company may offer a voluntary retirement plan to its older workers.

The challenge for individuals when choosing early retirement, is that many retirement programs are subject to certain laws about when a person can access funds. In addition, the individual must be sure they are fully vested into a company plan so they can get the full range of benefits when choosing to retire voluntarily. Most of these rules involve a minimum age or length of service with the company to get the benefits.

In certain countries, voluntary retirement is referred to as a “golden handshake.” This comes in the form of a clause in the employee's contract that mandates certain payments in the form of a severance package when the person chooses early retirement. Most of the time, this policy includes cash or some sort of vested interest in stock options. The concept of the golden handshake is considered relatively common among high-ranking individuals within companies such as the financial sector. It often causes controversy due to the fact that some of the executives receiving these incentives lost money for the company during their tenure, but were guaranteed certain benefits upon leaving the firm.

Government jobs in the United States are one of the most common examples of voluntary retirement. Employees in the public sector are generally covered by either the Civil Service Retirement System or the Federal Employees Retirement System, which allows federal employees to retire by the age of 50 with 20 years of service or any age with 25 years of service. These employees are still able to access all of the benefits of retirement enjoyed by older workers.

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