Michael Foguth spent some with reporter Susan Tompor from the Detroit Free Press talking about the GM Staff Reduction Plan. Click here to read the article on Freep.com or you can read the article below.
Considering GM’s buyout offer? 3 things to know
“I was trick or treating with my kids and they’re emailing me saying ‘Hey, what do you think of this?’ ” said Michael Foguth, a financial planner who has GM clients.
Foguth, president and founder of Foguth Financial in Brighton, said he was surprised at how quickly the buyout packages were distributed after the announcement.
GM is rolling out packages to nearly 18,000 white collar workers who have been on the job at the automaker for 12 years or more. The workers have until noon Nov. 19 to make a decision.
GM has not disclosed to the public what’s being offered, but local financial planners say their clients are seeing offers of up to six months of severance, including health care coverage during that time. Those on the executive level are receiving one year of severance, planners said.
Yet how do you know what to do?
Three simple questions are a good starting point before agreeing to an early retirement or a buyout, according to Foguth.
No. 1: Are you mentally prepared to stop working?
No. 2: Will you have a source of income for the rest of your life?
No. 3: Who else will this decision impact? A spouse? Children? Other family members?
While it’s a chance to quit your job and move on, it’s not as simple as just signing a few papers and packing up a few boxes.
On the one hand, buyouts can offer a way to have some options. We’re operating in a time of low unemployment where it may be possible to find another job or kick off a new career.
On the other, such cost-cutting moves put stress on many long-term employees who have shown a great deal of dedication to their companies. Many don’t know what to do next but they’re looking at possibly making a life-changing decision soon.
No one is forced to take a voluntary buyout; they can pass on the offer.
David Kudla, the CEO of Mainstay Capital Management, said his firm has been hearing from GM clients for the past two days now. Many are setting up meetings to review what’s being offered and how it might hit their pocketbooks.
Everyone’s financial situation is different
Some are worried about the possibility of layoffs ahead — if enough voluntary buyouts are not reached.
Yet Kudla suggests that people take a hard look at their own personal situation and not operate on the fear of what might or might not be ahead.
“There’s an emotional decision and a financial decision,” Kudla said.
He heard from one client who is 59 and felt this would be a perfect move for him, given that he thought about retiring next spring anyway.
But Kudla said the move wasn’t right for that potential retiree who had not yet accrued his maximum pension benefit. By waiting just a few more months, the GM worker would be able to get a pension check that was 50 percent more than if he left earlier, under the Voluntary Severance Program.
“It’s six months of pay, but it’s only six months of pay.” Kudla cautioned.
It’s important to review how one’s pension, health care and other benefits might be impacted before agreeing to a buyout, he said.
“You need to look at what else is being affected before you do it,” he said.
Dealing with emotional impact
Sam Huszczo, a chartered financial analyst in Southfield, said he has heard from some GM employees who are upset by the offer.
“They felt like they’ve given their lives to this company,” Huszczo said. “There’s a huge feeling like they’re trying to get ‘younger and cheaper.’ “
If not enough people volunteer, GM has said it would re-evaluate layoffs next year.
“It’s a thinly-veiled version of downsizing in general,” he said.
Companies that are concerned about sales growth may want to trim their staff to become more competitive.
GM lists its justification in its package, noting that the company learned much from the bankruptcy, and it recognizes the challenges ahead, including concerns related to trade with China.
GM noted in its leader talking points that the company “cannot afford to wait and see what happens in the industry, or with China, or in international trade or currency, to then react.”
“Continuing to lower guidance on Wall Street is not an option.”
A trend nationwide
Lately, we’ve begun to hear more about buyouts. Some big names that announced buyouts in the fall include giant drug maker Pfizer, which is offering early retirement to U.S. workers, and U.S. wireless carrier Verizon. (Gannett, which owns the Detroit Free Press, extended a voluntary buyout in October to employees 55 and older in the company with at least 15 years of service, as well.)
Buyouts may be on an uptick but aren’t close to the levels during 2009, according to job placement firm Challenger Gray & Christmas.
So far through October this year, we saw 46,100 jobs eliminated nationwide through voluntary severance. That compares with 4,829 in 2017. The peak was 63,567 in 2009 since the company began tracking such data in 2007, according to Challenger Gray & Christmas.
What’s interesting: Nearly 10.5 percent of job cuts announced were because of voluntary severance — the highest percentage on record. That’s up from 1.15 percent in 2017.
“We’re seeing an increase in these kinds of offers at companies in industries experiencing disruptions, like tech and automotive,” said Colleen Madden Blumenfeld, a spokeswoman for Challenger Gray & Christmas in Chicago.
She attributed some of the shift to imposed tariffs that are taking a toll on heavy manufacturers and others; as well as technological shifts, such as the development of self-driving cars.
“Couple this with investor concerns of a downturn, and companies are going into a cost-cutting mode,” Blumenfeld said.
What kind of cost-cutting, though, would you face if you took the buyout?
“This is where you have to read the fine print and get out the calculator,” said Robert Bilkie, president of Sigma Investment Counselor in Northville.
“It becomes a pure numbers game. How much do you need to live? How long might you live? What other savings do you have, and what might you earn on your investments to carry you through your remaining years?” Bilkie said.
Michael Tyranski, senior vice president, wealth management adviser for Merrill Lynch in Bloomfield Hills, said a buyout isn’t a good idea for someone who isn’t close to retirement or hasn’t gotten close to their net worth goal for their retirement nest egg.
“It has to make financial sense, given your goals and objectives,” Tyranski said.
Personal needs are important
Rushing into retirement can lead to a massive reduction in your retirement lifestyle, if you’re not financially prepared, he said. You could end up needing to make difficult decisions down the road, maybe like selling the family cottage because you can no longer afford it.
Think of the costs in retirement much like a home remodeling project.
“Whatever you think it’s going to cost, double it,” Tyranski said.
What about your health care costs going forward? It’s important to research what options might be out there. Some buyouts include health care coverage but others do not or offer coverage only for a very limited time.
Will you really be able to find another job? And one that pays fairly well?
“The good news right now is that workers who accept these buyouts are doing so during a great demand for skilled labor. The chances of finding another job are quite good at the moment,” Blumenfeld said.
Huszczo said a few of his clients are seriously considering the package but they tend to be in their early 60s, not 40s or 50s.
“They’re kind of sliding people forward who were on the fence about retiring,” he said.
In general, he said, his average client has been retiring at age 62.
Typically, he said, a buyout “is not a reason to fast-forward retirement.”
Contact Susan Tompor: firstname.lastname@example.org or 313-222-8876. Follow Susan on Twitter @Tompor.