Jan. 11, 1996

You're handed an envelope at work that contains a one-time offer: early retirement.  "It's a generous offer," the boss says.  But how do you know?  There is some confusion on this point. Dollars, of course, count for a lot when it comes to sizing up life without a regular paycheck.  But some financial planners say that money might not be the proper place to start in the decision process for taking early retirement.

"First, decide if you are really ready to retire," said financial planner David Strege, senior vice president of Cornerstone Financial Advisors Ltd. in West Des Moines, Iowa. "It has to be more than just wanting to get away from cold Iowa winters." After you've consulted your mirror on the wall for self-analysis about job satisfaction, health, family and other personal life matters, finances will quickly worm their way into the exercise.

Strege said clients who are early retirement candidates face these money questions:

"Can I make it on my own with this retirement package?"

"Am I ready to make necessary lifestyle changes?"

"What are the economic trade-offs by taking this early retirement proposal?"

And the missing link: "How long will I live?"

For a healthy couple, age 65, there is a 30% to 40% chance that one will live to age 100, he said. Nuts and bolts of early retirement deals often involve a lump sum payment, early Social Security payments with a company matching payment, and monthly payments from a company-defined benefit plan.

Defined benefit plans guarantee to pay you a specified amount when you retire, based on your salary, age and years of service. Some of these "sweeteners" may be reduced or eliminated once you reach age 62 or 65, warns Jacquie Anderson, pension and benefits specialist at Koogler Company of Iowa, a financial planning and investment firm in Pella, Iowa.

"You need to know whether having a smaller benefit over a longer period of time (now to your life expectancy) will be more valuable than a larger benefit over a shorter time," Anderson said. "Ask for these calculations." Correct dates of birth and employment are important details to check, Anderson said, because they are key numbers used by the company to calculate how much money you are going to receive.   Ah, yes, the money. How do you know if your early buyout offer is even in the ballpark with other pension plans?

There are guidelines. For instance, most company-defined benefit plans are designed so the pension benefit plus Social Security benefits will replace 60% to 70% of an employee's pre-retirement income. "That's not bad, considering that you are shooting to replace 80% of that income," said Daniel Kehrer, author of Kiplinger's "12 Steps to a Worry-Free Retirement" (Kiplinger Times Business, $15). Kehrer outlined some common incentives companies offer in their early-out retirement plans:

"Early retirement deals commonly increase the monthly pension checks you have coming by as much as a third. Often that's accomplished by adding three to five years or more to your tenure at the company for purposes of the formula that calculates your monthly benefit."

"A lump sum payment pegged to your salary level and length of service."

"A Social Security 'bridge' to provide extra income until Social Security benefits kick in at age 62."

"Extended health and life insurance benefits."

Kehrer said key points to consider when mulling an early retirement offer include pension dollar details and how the payoff compares with what you'd get if you continued working; what your employment prospects are elsewhere; where to put an early retirement lump-sum payment; and how much of the payout will be counted ordinary income and thus be fully taxed.

By Jim Lawless, Gannett News Service

Where to learn more about evaluating early retirement offers:

"Look Before You Leap: A Guide to Early Retirement Incentive Programs" is free from the American Association of Retired Persons. Write to AARP Fulfillment, 601 E St. N.W., Washington, D.C. 20049.

"Receiving a Lump Sum Distribution: A Guide for Investors Aged 50 and Over" was prepared by the AARP Investment Program from the Scudder mutual fund group. To order the free, 30-page booklet, call (800) 322-2282, Ext. 4441.

To inquire about Social Security benefits, call (800) 772-1213 to order Form SSA-7004, "Request for Earnings and Benefit Estimate Statement."

For facts about IRAs, call the IRS at 800-829-3676 and ask for Publication 590, Individual Retirement Arrangements.

To check IRS life expectancy tables and to calculate IRA withdrawals, call the IRS at 800-829-1040 and ask for Publication No. 590, available free.

"A Guide to Understanding Your Pension Plan," written for the American Association of Retired Persons by the Pension Rights Center, a non-profit consumer group in Washington, D.C. Write to AARP Stock No. D13533, AARP Fulfillment, 601 E. Street N.W., Wash., D.C. 20049. A number of mutual fund companies offer publications and software to determine how much money to save for retirement and how to invest to reach your goal. T. Rowe Price's Retirement Planning Kit is available free by calling 1-800-541-0295.

Check out Daniel Kehrer's book, "12 Steps to a Worry-Free Retirement" (Kiplinger Times Business, $15).

Ask a financial planner to evaluate your company's offer. The International Association of Financial Planners will provide the names of up to five financial planners in your area who are members of the Registry of Financial Planners.

These planners are CFPs who have passed a series of additional tests to enter the Registry. Call 1-800-945-4237.