Make sure your financial needs are met before accepting an early retirement package.

Everybody dreams of retiring early. But what happens if that dream becomes a reality?

Early retirement offers are often part of "downsizing" programs, which have become very common in the last 10 years. By downsizing, employers believe that they will save costs from lower salaries and a leaner organization. The benefits of an early retirement offer may include: a cash bonus, lump-sum payment of retirement plan benefits, some salary continuation, insurance coverage, continuation of medical benefits for a certain length of time and stock options. If you receive an early retirement offer, you may want to consider the following before accepting:

Effect on your assets and income needs
Early retirement means you have fewer earnings to turn into investments, and less time for your investments to accumulate earnings to provide retirement income. Keep in mind that a general rule of thumb is that you will need at least 75 percent of your current income to maintain your standard of living in retirement. Ask your employer how much retirement income you can expect to receive and how much represents taxable severance pay. Then, evaluate your income needs and determine whether you will have enough money to retire comfortably.

Will you continue to work?
You may find that early retirement leaves you with too little income, or that you simply are not ready to stop working. Would it be difficult for you to find another job that you find satisfying and financially rewarding? Or could you go into business on your own, become an independent consultant, or volunteer your services in your community if you don't need the income?

Health care
Will your employer provide retiree health benefits until you become eligible for Medicare at age 65? Many organizations no longer offer health benefits to retirees because of the high cost of health care. Compare the coverage you would receive, if any, to that of active retirees, and find out how much it would cost to purchase your own coverage.

When deciding whether to accept the package or not, you need to make sure that your needs are met financially. You want to be able to continue to live in a manner that is comfortable. If the retirement package meets your needs, your dream can then become a reality.