Nico Rosberg made the surprise decision to retire from F1 off the back of winning this year's drivers' championship, leaving Mercedes needing to find a replacement during the off-season, While Valtteri Bottas is favourite for the seat, Mercedes has confirmed it won't be making an announcement before January 3 and Palmer says the late move will leave Rosberg's replacement on the back foot compared to Hamilton.
"I couldn't really believe it," Palmer told the BBC. "It's the best job. To be champion, to be in the best car and being paid a huge amount of money.
"It is what everyone else is aspiring to do, so to be in that position and call it quits is difficult to understand for a lot of other people. I would love to be in that position, but I don't have a family and kids. I respect him, because from that position it is a very brave call.
"Anyone else is going to be coming in new to the team, and also pretty late without the preparation that most others have had."
However, Palmer doesn't believe the driver situation will have a major impact on Mercedes overall, expecting another strong performance from the dominant team of the past three years.
"I don't doubt they will be fine. They still have Lewis Hamilton in the car and whoever they do get in the second car will be a very capable driver anyway.
"It is harder for them, and I'm sure they would much prefer Nico was staying on, but I think they have been so dominant the last few years they should be able to transfer that in to the next generation of cars and at least be race winning."