When the going gets tough, the older employees get going-often with a voluntary buyout package in tow.

The economy is in its worst shape since the recession of 2001, and that has employers in the mood to cut jobs. Employers eliminated jobs at an accelerating rate through the first three months of the year, and the national unemployment rate stood at 5.1 percent at the end of March.

Often, employers reduce their workforces through voluntary early retirement buyout packages targeting relatively expensive older workers. The incentive typically is a lump-sum cash payout tied to your years of service, and sometimes includes extension of benefits. In exchange, you’ll be asked to sign agreements protecting your employer from legal action, and in some cases a no-compete provision for a defined period of time.

The slow economy-coupled with the large number of baby boomers approaching retirement age-makes buyouts a logical way for employers to cut payrolls without resorting to involuntary layoffs.

Accepting a buyout is a life-changing event if you’re past 50, because you’re unlikely to replace your old job with something similar in responsibility and compensation. That means you’ll likely face the challenge of remaking your career, either by moving into a different field of employment, becoming self-employed or starting a business.

How should you decide whether to accept a buyout? Here are some key factors to consider.

Stay or go? If you’re offered a buyout, take a hard look at the consequences of staying on. If you don’t take the voluntary deal, will you be vulnerable to a later round of involuntary layoffs, which won’t come with incentives? John Challenger, CEO of outplacement consultants Challenger, Gray and Christmas, recommends that you take a good hard look at your status within the company and the likelihood that you’ll be retained. Keep in mind that no one is irreplaceable these days.

Finally, consider what working conditions will be like for those who stay on after the staff reductions. Will you be asked to shoulder a larger workload resulting from the cutbacks? Is that acceptable to you?

“A fairly high percentage of targeted workers accept the buyout, because of the threat that involuntary layoffs will follow,” says Challenger.

Is my timing right? If your planned retirement is only a year or two away, accepting a buyout probably is a no-brainer, since you’ll likely be paid for most of your planned remaining working months. The one pitfall to watch out for here is health insurance-which I’ll address below. If retirement is still years away, you’ll need another job-and you should be realistic about assessing your prospects as an older worker. A recent study by the Urban Institute-a think tank that studies retirement issues-found that most people who switched jobs at older ages wound up with lesser positions that paid less and often didn’t come with benefits. Many wound up self-employed.

Have I hit pay dirt? Buyout offers-especially those that come with a lump sum payment-can create a false sense of wealth, says Joel Larsen, a certified financial planner and principal at Navigator Financial Advisers in Davis, Calif. “I see a lot of people who feel like they’ve hit pay dirt,” Larsen says. “It seems like a ton of money because it’s a lump sum of some kind, but it really isn’t when you sit down and figure out how long that money will last.”

Deciding whether to accept a buyout should be driven by an overall retirement income plan. Do you know how much you’ll receive each month in Social Security and pension payments, if any? How much will you need to live on in retirement, and what’s the gap you’ll need to plug with a new job?

Am I dreaming? Many baby boomers dream about second careers as entrepreneurs, often in romantic occupations. But entrepreneurial second careers require careful planning and training-especially for people accustomed to getting a regular paycheck. Are you really ready for the entrepreneurial lifestyle, where you’ll be responsible for every phase of operating a business? Are you motivated to hustle for customers and revenue, and for the risk of failure?

Will I be insured? Take a careful look at where you’ll get health insurance. The “Medi-gap” years leading up to Medicare eligibility at age 65 can be treacherous. If you’re fortunate, your buyout offer will fund health insurance for a year or more, or the right to participate in the employer’s plan at your own expense. You always have the option of extending your participation for 18 months under COBRA. Beyond that, buying individual coverage can be very expensive.

If the decision-making process sounds tough, that’s because it is. Still, a buyout could be your chance to get going.

Tags | health insurance, planning, retirement