Tips To Consider If You Are At Risk Of Getting A Severance Package

With the current economic expansion already extremely long, even by historical standards, there is a rising risk that record low unemployment most likely won’t stay that way forever. 

Could your job be at risk when the next recession comes?

Severance packages are popular when companies seek to reduce workforce, especially older workers. According to Lee Hecht Harrison and Compensation Resources Inc. in their 2017-2018 Severance & Separation Benefits Benchmark Study of over 350 senior HR leaders at U.S. companies, 88% of companies pay severance.

Seeking to accept a severance package is more than a financial decision, there’s an emotional process about to arise. It’s one thing to prepare for retirement; to be placed suddenly in a situation where retirement or a possible dramatic shift in employment is thrust upon you, is quite another.

However, emotions need to be placed on the backburner until a financial decision is made. In most cases, you’ll have at least 21 days to do your homework. You’ll need the time to thoroughly understand the severance agreement especially if it includes a non-compete clause if planning to return to the workforce in a similar role.

For those who have accepted a severance package, what’s next?

The process can feel intimidating.

Don’t worry.

We’re here to help you make sense of it.

There are several points to consider:

Severance pay tax timing.

Depending on how severance pay is administered, it could be best to have it paid out over several years to avoid a big tax hit. A lump sum may push you into a higher tax bracket and perhaps trigger greater capital gain liability and the Medicare surtax. Best to consult your tax advisor and then your employer’s HR department to determine whether this is a viable alternative. Naturally, working through your budget to make sure this strategy makes sense, is important.

Maximize your Health Savings Account contribution.

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For a severance kit assessment and expanded information about the points outlined here, please contact us at RIA Advisors to discuss your personal situation.

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