For the first time in its 51-year history, Microsoft is offering a voluntary separation and early retirement program to a portion of its U.S. workforce [CNBC]. If you’re eligible, or think you might be, you’re probably already doing the math in your head.
Let’s talk about what this actually means.
Who’s Eligible?
The offer is available to U.S. employees at Level 67 and below whose age plus years of service adds up to 70 or more.
What does this mean?:
- Age 50 with 20 years of service? You qualify.
- Age 55 with 15 years? You qualify.
- Age 60 with 10 years? You qualify.
Microsoft will release more details on the voluntary separation package on May 7th. Reports say about 7% of U.S. Microsoft employees will be eligible.
Things to Consider
On the surface, an early retirement package feels like an opportunity. In our experience working with Microsoft employees through transitions like this, the upfront package is rarely the most important part of the decision. Here’s where the details matter:
Your unvested Microsoft shares. What happens to your RSUs if you leave? This depends on your age, years of service, and whether you qualify for Microsoft’s retirement vesting provision (age 55 + 15 years, or age 65).
Your healthcare. Microsoft’s medical benefits won’t last forever after your last day, and if you’re not yet 65, you’re not Medicare-eligible. That gap until Medicare can be years long, and the cost of bridging it is one of the more underestimated expenses we see in early retirement. Whether you end up on a continuation plan, a marketplace policy, or a spouse’s plan, the monthly price tag is worth modeling out before you make any decisions.
Your taxes over the next two to three years. Accepting a buyout can create a spike in taxable income when you take into account severance, accelerated vesting, and potential Deferred Compensation Plan (DCP) distributions. Without planning, you might find yourself in a higher bracket than expected.
Your 401(k), especially if you hold Microsoft stock. If you have highly appreciated Microsoft stock inside your 401(k), rolling it over to an IRA without thinking it through could cost you. If you’re in this situation, it’s worth considering a tax strategy known as Net Unrealized Appreciation (NUA) that can be beneficial. Because of how nuanced this specific strategy can be, we recommend you consult with your tax expert.
Today’s To-Do List
Even if offer details aren’t finalized, there’s no reason to wait:
- Pull up your current RSU vesting schedule and understand what’s at stake.
- Know your 401(k) balance and whether you hold Microsoft stock inside it.
- How are your deferred compensation plan payouts structured?
- Think about your monthly spending and your funding plan.
At Avier, we’ve spent over 25 years working with Microsoft employees through career transitions, benefit decisions, and retirement planning. If you want a second set of eyes on your situation before or after May 7th, we’re happy to connect.
Deferred Compensation Enters the Conversation
As income grows, taxes tend to follow. Deferred Compensation can be a powerful tool in controlling your income by deferring part of your compensation to a later time.
At a high level, these plans allow you to set aside a portion of your income today and receive it in the future, often during retirement or another lower-income period. The benefit is straightforward. You may be able to defer taxes when rates are high and recognize that income later when rates are lower.
But this is also where things require a bit more care.
A Deferred Compensation Plan is not the same as a 401(k). The funds are not held in a separate account in your name, and access is limited based on the schedule you select. There is also some level of employer risk to consider.
For those who have access, the question is less about whether it is good or bad, and more about how much, when, and how it fits alongside everything else.