How to Use My Severance Package for Retirement [Video]

If you are receiving a severance package, you could be on track to reaching your retirement goals! In this video we cover what to expect in a package, the option to negotiate, and how you can use your severance package for retirement.

Video Transcript

If you found this video, chances are you’ve just been let go from your job or you think you might be. But if you’re watching the good news is that this could be your first step towards retiring sooner than you thought possible.

Hello, my name is Michelle and I’m a financial advisor here at Financial Design Studio. We help business professionals retire in a tax efficient way. If retirement is getting close for you, we have a free retirement guide that you can download, which is linked below.

In this video, I want to talk to you about what you can expect from your severance package and then the ways you can make the most of it immediately in the short term and in the long term.

Why Are You Receiving a Severance Package?

In the immediate term, what you really want to focus on is what’s happening. There’s a lot of pieces that you want to understand. This can usually be a quick decision that you’re making, and can affect your plan in a large way.

So people who are typically receiving packages are corporate executives, who might also have other benefits that they’re receiving. And even though your employment is being terminated, your company still wants to essentially send you off in a good way,

There’s a lot of reasons why severance packages can be offered. It could be that layoffs need to happen in the company. It could also be just a simple restructuring, some divisions come and some go and change. So it’s not always that you’ve done something wrong. It could also just be that a new acquiring your company and they don’t need those positions any longer.

One thing to note, even as a corporate executive, when your employer is letting you go, it doesn’t necessarily mean that you will receive a severance package. So don’t expect it!

What Can You Negotiate in a Severance Package?

So now in the short term, there are a few questions that you need to get answered about your severance package. The most important one is, can you negotiate the the benefits that you’re receiving in your package.

It is important to know some of the typical things that are put in a severance package. Here are some questions to ask:

• How long does the severance package last? You don’t want to have any gaps in income or benefits. Will you have enough saved? How long can you last without needing to find another job?
• Will you receive the income as a lump sum payment or over several months? If it’s over several months, it may not be a large change because, they may just be saying you’re going to receive the same paycheck that you have been.
• What happens to your stock options and restricted stock units? Executive benefits like this have vesting dates that are important. If they are beyond the length of your severance package, are those going just go away? Can you continue to exercise what you have beyond the length of my severance package?
• Will you receive unused vacation pay? This is something a lot of people forget to ask. It could be a lump sum of funds that could make a big difference in your plan!
• Will you still get any outstanding bonuses? Sometimes there are bonuses that you receive for the year that have a delayed payout. You want to understand: is that still something that you’re able to receive if you’ve earned it? When does that stop? Or when will it be paid out?
• When do you lose access to employee benefits? You probably receive a lot of important things from your employer like health insurance benefits, life insurance. You really want to know when do those dates end?

These are common corporate executive benefits, so these are common questions that you should be asking. And again, if you have the ability to ask, maybe it’s something you can negotiate. If you need something specific you for your specific plan or your family’s needs, bring it up!

How Can You Use Your Severance Package for Retirement?

Now that we’ve moved past the immediate thoughts and things that you need to be considering in the short term of any end of employment, we want to talk to the person who says, “I want to retire, even though this might look a little different than I thought it would.” So, how can we use your severance package to make this happen?

One of the things to consider is when did you plan to retire? Are you really just six months before it? Is it more important for you to accomplish your goals or accomplish more at work? If you want to retire, here are three gaps you can use your severance package to help fill in.

Do You Have Income Gaps?

If you are receiving a severance package, let’s say that continues for another three to six months. Your retirement plan is on track, you don’t need to go back and find another job.

Once you get used to having monthly income apart from a paycheck, you can start thinking about what comes next. Do you need to take that money from a 401k, an IRA, or maybe you have savings that were set aside?

It’s important to know your options and your balances, but retirement is more than just a numbers game. Now your questions become, when should I use each account and how much should I withdraw? These are questions that you solve by working with a financial advisor like us!

Do You Have Benefit Gaps?

Now, the other thing that is very similar to income are the benefits that you’re receiving. If you are someone who is age 64, and you have a severance package, you still have one year before Medicare starts. You might have kind of this gap of when health insurance will end.

How will you ensure you have coverage? Maybe you’ll use Cobra to get through the rest of that year until Medicare starts. We have an excellent article on health insurance options for early retirees which you can read here.

Do You Have a Mental Gap?

A lot of people who say they’re not quite ready to retire, could. They have the assets, but they’re not necessarily mentally ready to retire. They love what they do, it’s fulfilling, it gets them up every morning. They’re excited to see their co-workers every day.

But now, if you’re receiving a severance package, you’re now kind of forced to think about what to do with your time beyond work. This is the perfect timing to shift your thinking and make the transition to retirement.

There are lots of ways to fill your days and also feel fulfilled by what you are doing. Think, could I volunteer at different organizations? Could I help younger career professionals who are in the same profession that I’m in? Could I get more involved in my grandkids lives?

Your Next Steps

So, receiving a severance package might feel like a closed door, but it actually might help you get to your retirement goal sooner. That’s why people nearing retirement work with financial advisors like us who manage investments alongside comprehensive planning. This is how you retire with confidence.

And if you want our team of financial advisors to support your retirement plan, this is what we do best. Our team specializes in tax efficient retirement planning for individuals with executive compensation. So you stay on track all year, every year, reach out to our team at to schedule a 30 minute consultation.

We’ll see you there or in the next video!

Bonus: Our Free Retirement Planning Guide!