Ford Offers Employee $50,000 To Leave
Photo courtesy of hyku
Near the end of the first hour of the February 23 Dave Ramsey radio show, a Ford employee (Mark) called in with a dilemma. Ford has offered him an “entrepreneur” buyout package with a $50,000 lump sum payment plus free health insurance for the next five years. The caller was running a part-time lawn care business and asked Dave if he should take the money and run, or stick it out in the interest of job security.
Ramsey correctly pointed out that if a company is offering people money to leave there is not much job security left. Very true. I would go even further to say that there is no such thing as job security – for any of us.
So the decision before Mark is to take the buy out now and work on his lawn care business (or look for another job), or hang around at Ford and hope he isn’t laid off without a buyout offer down the road – a very real possibility these days.
The Numbers
Mark currently earns $70,000 a year at Ford. By applying the $50,000 lump sum payment to what he owes, he will be debt free but the house. The lawn care business grossed $30,000 last year while he and his son ran it part time.
I would advise Mark not to use his entire lump sum to pay down debt; at least not right away. Instead, I would tell him to pay himself a salary from the $50k for the first eight months or so after leaving Ford. I would go so far as to automate the process by stashing the lump sum in a high-yield savings account, such as the one offered by ING Direct, and schedule bi-monthly transfers to his primary checking account, as if he was still receiving a paycheck from Ford.
When the lawn care business is consistently bringing enough money in to cover his bills (consistently meaning at least three months) then he can pull the trigger on the lump sum and use what’s left to pay down as much debt as possible, minus an emergency fund.
I worked in the lawn care business some in college, and ran my own business as a side hustle for a short time. It is the epitome of a cyclical business because during spring and summer things are hopping, and by fall they start to taper off. Over the winter, it’s hard to land a job doing anything other than removing snow or doing landscape projects (pathways, retaining walls, etc.). For that reason I would recommend Mark save up a large business emergency fund to cover those down months, or to cover a period of illness or injury. After all, you cannot take any sick days when you work for yourself.
Would I Take the Buyout?
In a heartbeat! The only thing stopping me from pursuing a freelance career now is our remaining debt and concerns over health insurance. If someone offered me a $50,000 check and insurance for five years I take it before the ink dried. But that’s me. Some people do not have the same tolerance for risk. Some people do not like all the aspects of running your own show. The marketing, the bookkeeping, the administration, etc. can be a drag to someone who just wants to get their hands dirty. But that’s part of being an entrepreneur. You either have to do it yourself, or hire someone to do it for you.
How would you respond if someone made you the same offer?
Me too…I’ll race ya’ to the table!!
But one thing I would caution Mark to remember is that often, if you refuse a buyout the first time, the next time one rolls around to you, the number will likely be smaller. And the insurance for 5 years is a great deal…have you tried to buy your own health coverage lately?
Have a great day and enjoy dreaming of your own bailout…
I would take it as well. That is my salary as a teacher and it would give me a year to decide what I wanted to do as a second career. I dream of that, but it is very difficult to leave a paying, fairly secure job.
I would also encourage him to take the $50k, the likelihood of him still losing his job is high and it is the right time of the year to start growing his lawn care business. I agree that taking the whole lump sum to debt may be drastic unless it will allow him to survive solely on the side business.
I would take it. $50K with 5 years of health insurance is enough to sustain my current lifestyle with my sister for 2 years.
And there is still a possibility of getting another job or finding other ways to generate income.
I heard GM is offering more $ and a free car. (source – angered GM employee) Angered? yep – that’s crazy. Take the money and move on.. before they change their mind!
Excellent post!
Wow . . . I don’t think any of you could beat me to the table! Health insurance for 5 years is really the icing on the cake here, considering how expensive premiums are for self-employed folks!
What a blessing that he already had a side business created. That should help for a smooth transition and now he can cultivate the lawn care business and probably earn twice what he did last year with that.
I’m happy for him. Hope he makes the logical decision!
Yes… no question about it. What’s that old saying “Don’t look a gifthorse in the mouth”
And this is definitely a gift they are giving- there is really no obligation to give anything.
Yep – that’s over 3 yrs wages for me and the health insurance is all I am looking for to retire! Got 10 years til medicaid and that would get me 1/2 way there. I’m already debtfree. In a heartbeat!!!
A couple things to remember about this is 1: you pay the highest bracket in taxes w/this buyout and 2: if any one of these company’s files for BK the 5 year health care coverage is void. GM is offering buyouts to people that have 20 – 30 years w/the company and the buyout was comparable. Chrysler offered the biggest Carrot, so to say. Some dept. like accounting had a 90% acceptance rate and now the dept is scrambling to figure things out! However, our suppliers are not offering any thing close to this.
I dream of having a freelance career — all that stops me is the fear of working and only making enough to pay the exorbitant health insurance premium. If I had free health insurance for five years, even without the lump sum (or with a much smaller one), I’d be signing those papers and out the door before the ink dried.
I’d probably take it for the health insurance alone *IF* the insurance policy were a good one. With no debt other than the mortgage, we could easily live on that $50k for more than a year. And if we recast the mortgage, we could probably stretch it to two years on just my incidental income if we were very, very careful.
Given the state of the economy, and that the company is actively trying to divest itself of employees, hell yes, I’d take that offer.
I would take it without a second thought. Of course many people will be caring for their own lawns this summer unless he has some commercial accounts. It might be a little harder to make that $30,000.
Good advice to put the money in the bank and write yourself a paycheck. Who knows what the future holds at this point.
That was a very interesting article – thanks for posting it – I love reading your blog everyday!
I agree completely! Take the buyout. That is an amazing deal that not many people are getting right now — and it won’t be there down the road. I like your reasonable idea for the disposition of the $50,000 as well.
I’d take it. Especially with the landscaping business already up and running. I think the advice you gave was great.
We’d take the money in a heartbeat too!
My husband learned the hard way about company loyalty. He worked for one company all through his apprenticeship – approximately 5.5 years. A month after becoming a journeyman, this company laid him off 2 days after Christmas.
A year later the company he was working for laid him off – by voicemail – while I was in the delivery room having our 5th child. This past year he was laid off the day before Christmas.
This is not a seasonal business, so this isn’t something that we should have been expecting to deal with year after year. But we’ve learned that ultimately we need to depend on ourselves because the days when you could work for 30 years for a single company and retire on a pension are long gone.
$50,000 and free health insurance for a year? Sign me up. In today’s roller coaster economy, relying on the “security of your job” is probably the greatest risk you can imagine.
Great advice, especially using the $50,000 as a salary until the new job starts ‘paying the bills’. The only other thing I would say/encourage is for Mark to look for ways to cut back on his monthly expenses and start living on $50,000 (or less) a year instead of $70,000. If the new job starts making more than enough to meet the bills, establish a solid emergency fund, just in case people start doing their own yard work.
The “promise” of 5 years of health insurance isn’t worth as much as it seems at first glance. Just ask the retirees who took less compensation when they were working on the promise that they would have health insurance coverage post retirement.
I’d take the deal, try to negotiate something – along with others – re the health insurance – and then be very very careful how I spent the money. Part of the dollars should be set aside re the future health insurance.
I think the money in this case is way too little an offer for ending a $70,000 job . . . it will go faster than one would think. That said, one has to weight the risk of the job continuing. I might have to take the money on the basis of a bird in the hand is worth two in the bush . . .
Personally, I think the real value is the five year insurance offer . . .
At least this guy has a viable side business– I feel bad for the people who don’t.
Frugal Dad,
What freelance business are you hoping to get into when your debt is gone?
Deal or no deal? I heard this call on the Dave Ramsey Show as well and it made an impression on me too. I think Mark has to take the deal simply because the next offer may simply be a layoff.
However, the lawn care business sounds like a tough gig especially after 17 years of steady employment, but maybe he can make it work. There is so much more to running such a business than just cutting grass.
Dave tried to point this out to Mark. I hope he got the message. I think he mainly wanted firepower to help convince his wife.
I would take the money in a heart beat. Ford is going to be blooding for many years. Chances are you are going to get laid-off anyway.
@The Personal Finance Playbook: Well for starters, I’d like to pour more into this blog and a couple others I have spread around. I’d also like to contribute to more offline writing opportunities (not that they’re knocking down my door or anything, but I’ve missed a few opportunities for lack of time to meet deadlines). There are also several off-shoots of blogging that interest me such as social media marketing, consulting, etc. Lots of opportunities, so very little time!
I’d take the money and run!
P.S. I believe they’ve just about finished bulldozing that plant. That picture is history!
I’d take the offer of health insurance alone & run!
How could you not take that deal! Especially working for a detroit car company?! Unfortunately, our auto industry is circling the drain and everntually will be unable to support itself.
If they are giving you a way out take it!
No way I take less than a years pay to leave a job this good. I actually work at the Ford plant in Louisville and they are trying to not down size as much as replace us with people that will only be paid $35,000 a year. It’s always about the money for these companies and they will more than make this up in less than a year as the benefits are all less than half of what they pay us as well. The new employees will never have a pension either. I know we are a dying breed but I want to live a middle class lifestyle a little longer hopefully and leaving a job this good isn’t how I would do that.
I would take the 5 years of health care if that was all that was offered. Of course, I wouldn’t turn down the $50,000 if it were offered.
This happened to me. There was a different twist — I was an art director for a company that was going to shut down the branch where I worked. It made offers to managers that if they stayed till the end, they got a bonus which they wouldn’t get if they cut and run. I took the bonus, collected unemployment when the end came, and started my own business. This was 10 years ago. I am still running the same business I started as my primary income. I only had to collect unemployment for a month before I made too much to keep it.
One thing to keep in mind with the health insurance — if the company goes under before 5 years the insurance won’t be worth a hill of beans.
Take the money and run! The healthcare offer alone makes it worthwhile. Even if the company goes bust and the healthcare benefit becomes null and void, well, you haven’t really lost anything that you wouldn’t have lost had the company eventually laid you off (and sounds like this guy is on the pink slip list anyway).
I’m self-employed and buy my own healthcare. We pay more than $300 a month for the most basic, high-deductible plan you could probably imagine, and we were thrilled just to get that (we were denied by two other companies for the dumbest reasons ever). Five years of healthcare coverage… that would be amazing.
It’s nice that this person already has a budding business (no pun intended) already in the works. Even at $30K a year, that gives him some security.
I would take the money and run. House payments aside, he can live frugally if he has to. The health insurance is a great deal as well.
This reminds me of the Zappos offer. Have you heard of this? They offer it to people right after they’ve been hired: $2,000 to simply walk away.
The idea is to weed out those that aren’t really committed to “the cause” and to show that that they want really motivated people.
It’s a tough call…walk away after getting a job for $2k? I don’t know
How much will they pay me to not even apply?
This is a very sad news. Those who are in college like hoping to get a degree to obtain a good job only now to realize there is no such a thing as job security now. It’s already difficult enough to compete during economic upturn, it’s insanely horrified to obtain any job at all since you can’t really be picky because the money all look the same to the bill collectors and credit card companies. I have heard credit card paying customers to close their accounts. But now employers pay workers to leave their job. What now, universities pay students to drop out… I really hope it will not come to this point.
I’m a Canadian news reporter and have been offered a buyout of $41,000 (before taxes) with no health and life insurance coverage beyond three months.
I haven’t found another job and, being the main breadwinner, can’t handle the risks involved. But… I am kicking myself for not taking the buyout. The work environment has become poisonous, with this sense of impending doom seeping from the cubicles and… I no longer want to work here.
My advice, take the money and find your own way.
And if there’s another round of buyouts after these layoffs, I’m taking one and getting the hell out of here.
Good luck!
AMEN @ If someone offered me a $50,000 check and insurance for five years I take it before the ink dried.
Ditto, you wouldnt have to ask me twice. I would do my darndest to pay down most of my debt before accepting the offer while looking into moving to a new area, learning new skills and start anew.
I think one thing that’s odd to me is that these folks relied on ONE industry in their area for their financial well being. I know that history says their parents were able to graduate on Friday and have a job on Monday then retire 30 years later somewhere but that’s a bit narrow for me. Along the way I would have learned some new skills, went to school etc so that if/when something like this happens I’d be prepared. But hey, that’s me.
I would so take the $50K and health insurance. $50 would go a long long way on a frugal budget.
Good point to pay yourself FD. Great idea.
I would also take the $50K payout as if and when the company does go down you wouldn’t even get a single cent from it.
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The $50,000 sounds good, but – it depends on how they structure it. My DH got a lump-sum buyout when he was laid off in 2001. Because he was 49 there was a penalty charged (10% I think), plus a hefty tax withheld unless the monies were rolled over into a retirement account of some sort.
I would take the offer and run!
You can always find another job but how many times in your life is someone going to offer you $50,000?
Nice read on Mark’s situation… I listened to that same call on my iPod the next morning as I was working out and my thoughts mimiced yours exactly.
I was offered a buyout in December and took it effective mid January. I’ve don’t exactly as you’ve instructed… put the cash in savings and draw from it at a rate equal to planned expenses. While, I don’t have a paying side hustle just yet, I’ll treat side, temp, contract, or even fulltime jobs in just the same way.
Great to see my approach validated! Thanks for article!
Dave
[...] Ford Offers Employee $50,000 To Leave. Would you take $50,000 and 5 years free health care coverage to leave your job? I would. In a heart beat. [...]
Mark already has a side business going on. He should also know that the car industry is not exactly hunky dory.
I agree with what DR told him and this seems to be almost unanimous.
I am not sure of the tax position which one of the commenters talked about, though.