Take Severance Pay and Run?


Thinks s/he gets paid by the post
Feb 8, 2003
Nomadic in the Rockies
Hi all. As many of you know, I'm not as close to retirement as the typical poster here. I hope you'll forgive this career/job topic.

My company (big Fortune 500 company) wants to downsize and I am currently eligible for a voluntary severance package. With my tenure I'd get a year's salary plus $10,000 (all as a lump sum in late November). The catch is I can never come back to work for this family of companies.

The main issue for me is the opportunity for the cash windfall versus my feeling of security with this company

The security part may sound funny since they're downsizing, and since I'm eligible I'm obviously not considered critical. But even if I were to get laid off I'd feel like at some point in the future I'd have a familiar company to come back to that knew I was valuable.

On the other hand, how often does a company offer you a year's salary simply to go away? It's like a moderate lottery win or a 10-bagger. Assumnig I attain employment right away it's one hell of a bonus.

I am currently paying down CC debt which would be paid off in May if I stayed. If I took the severance I would pay this off in November. The only other debt I have is a no-interest car loan with my grandad. I would probably go ahead and pay that off, too. After that and taxes I'd have somewhere between 3 and 6 months' living expenses depending on a few factors. I also have a modest nest egg in my 401(k) and an IRA, both heavily invested in stock funds, and a defined benefit pension plan I'm vested in. I currently plan that I would immediately sock the excess money in a MM fund as a cash cushion, although I'll probably break down and spend a couple of thousand on a new toy such as a used sailboat.

If any of you have thoughts about the apparent security of a familiar company versus a severance windfall I'd love to hear it.

Need more info,

There are a number of factors that are important, such as; if you stay how much longer before you could have your pension? what about health insurance? do you want to do something else out? can you get a job that you like or area you want ot be in? habits die hard, get out of debt w/o the payoff, is better;

If you are near retirement (2-3 years) how does this affect pension, etc? If you are a long way away and don't like your job then, find what you want and go for it?

Best wishes

Other things to consider:

Good jobs do not grow on trees. How valuable are you to the company for which you work? How likely are you to find a job with similar/better pay and benefits to that you are currently receiving. Although I was eligible to take an early out, no one expected me to actually take it. I was just lumped in with a bunch of people 10 years my senior they wanted gone. Then they figured they would hire me back as a contractor. Wasn't going to happen; I was going for good. So they ended up hiring a replacement. I was happy; the fellow who replaced me was happy; and the company took two steps back.

Adding the severance pay to that already earned this year may jack you into a much higher tax bracket for the year. This may significantly reduce what you receive.

I've seen many friends who have taken the early out incentives, only to return as contractors making less money and receiving fewer benefits then before. Unless you are extremely confident that you can improve your employment situation, or feel quite certain that if you fail to take the severance you'll be let go with nothing extra, I would stay with what you have.

It is only a situation that you can judge.

Don't be like the early retirees in 2000 who said, "I can retire early as long as I continue to make 15% annually on my money." You want a high degree of confidence in the outcome.

Best wishes.

Earlyout and Red bring up some excellent points.

And if you are in a professional position, 3 to 6 mos. living expenses isn't much considering the amount of excellent talent that is out on the streets now. They are your new competition if you take it.

Hopefully, you have more than 2 weeks to make a decision like this!

Big companies often "ask for volunteers" before layoffs begin. Sometimes they say that the "before" deal will be better than any layoff deal. And sometimes they offer it just to some people. But their plans go awry, as they have to offer it to ALL people to avoid discrimination lawsuits. Unless it is something that has a particular defendable threshold, say, offered only to people within 5 years of the companies official retirement date. Anyone who declines the "volunteer" offer, and who does get laid off next, just squawks that they were put in an untenable position, and then they get what the volunteer offer was after all. And within a day or two of that getting around, the layoff package gets sweetened for all, to avoid the look of discrimination.

The number 1 goal for a big company laying people off is... not to be sued by the laid off people!

There is a whole business in avoiding that. Consulting firms that write the companies policies and layoff packages. Do some Internet research. Including the details of the WARN Act.

They will sweeten the pot, to get the laid off person to sign on the dotted line on a critically worded release from liability document.

Without proper research in advance, a suddenly laid off person is like a sheep surrounded by wolves in the corporate world.

I have known a few younger people that took a volunteer package, but they quietly had another job all lined up. But a couple of those companies they went to have since failed.

Tread carefully!
One other note, my brother in law took one of these years ago from a Fortune 50 company. It been about 10 years after signing one of those - you can never work for this company again - but he is back at that company again. There must have been a loophole there somewhere ;)
Thanks a lot to all who responded so far!

earlyout: I'm 33 and will not likely be in a position to retire until at least 10-15 years out. I am vested in my pension, so even if I left now I could draw a monthly benefit at 55 (reduced) or 60. The benefit is a percentage of the average of my 5 highest years' compensation. The percentage is 2% per year of service up to 50%. If I left now my % would be 28%; if I stay, that % could increase for another 11 years. There is no adjustment for inflation, so the value of my high-5-years average salary would erode with inflation after I leave, whenever I leave. As far as health insurance I would most likely get it from my next job.

RedOscar: You're right about taxes. I sure wish they could've put off the payment just 35 days longer, but no dice. As to your example that you didn't think they expected you to take the offer, I don't think anyone who knows me wants me to leave the company, but I don't necessarily trust upper management to make decisions based on that type of trust. Upper management usually looks at big pictures, and I'm afraid I could get lost in the big picture. There are counterarguments to that, but I'll type all day if I start going into them.

Telly: I'm a computer professional. I think I'm way above average, but that doesn't seem to make it easier when job hunting, because job hunting requires more sales skill (or lying skills). I have nearly 3 months to figure it out, so at least there's plenty of time, although I may drive myself crazy before then because I keep changing my mind about what's best. You bring up a good point about the politics of staff reduction. Just because I'm eligible doesn't necessarily mean they think they'd be better off without me, but it's so hard to tell what the higher-ups really think.

10splayer: (I didn't get your name until I typed it out...cute.) Good point. Companies can break their own rules if they want to. I can't count on that, of course.

johngalt: That's simple and straightforward enough to not need a response, but I didn't want to leave you out. I do respect your advice.

I guess I could've clarified that if I left I would still need to work. The most likely scenario would be my going to another large company with a 'normal' benefits plan including group health insurance and a 401(k). (I don't have a job lined up yet, but I'll shortly be updating my resume and looking for what I could line up.) I'm toying with ideas of doing just contract work or starting my own one-man company or working part-time in a sort-of semiretirement, but those ideas lend themselves to an entirely new discussion. They'd probably need a larger cash cushion than 3-6 months to start safely, anyway.

You all make very good points. A good case can be made for staying or taking the money and running. I guess this decision isn't going to become any less difficult.
One final comment on this. Although I was never offered a package to go, I was offered a very lucrative
package to stay. The company knew I didn't want to work any more but thought I could be persuaded if the
pile was large enough (I was 53 at the time). Even though I needed the money and was very flattered,
I turned it down flat. Once your head and heart are
into ER (and you can see it can be done), the decision becomes a slam dunk! At least it was for me.
I might take the money only under two circumstances:

1. I really want the money. I want to take a year off, for example, and this will fund it. AND I'm fairly certain I'll find a new job that's just as good.

2. I don't really care for my job that much, and I'm absolutely certain that I'll find a job that's just as good.

Right now BOTH 1&2 are true, and it would STILL be very difficult for me to take that offer (though ultimately I think I would).

I've changed jobs three times in the last ten years, and every time it's been a great move. There is a chance that you'll find a new job that's far better than the one you have.

On the other hand, they say that it's far easier to find a job when you already have one. Employers view people who've been laid off with suspicion, and I don't know how they will react when you tell them you took the cash prize.
Most defined benefit pensions are frozen in place on the date you leave the company. This means that inflation will cut your pension in half before you receive the first penny if you leave now. In most cases, you have to remain with the company to get the benefit of any increases in pension due to inflation adjustments.
One thing to consider that has not been mentioned here is that when a company is in the downsize mode, they sometimes do not know when to quit. It is possible that you could get terminated 3-4 months down the road and WITHOUT the generous severance package. Once the company bean counters wake up to just how much these packages are costing the company, a lot of pressure may be put on the CEO to reduce or eliminate them. In most cases (but certainly not all) it is a good idea to take a generous severance package and then immediately begin looking for a similar job elsewhere. If your company really valued your services, it is unlikely that they would even offer you such a package. Try to save the money to fuel your ER investing rather than spending it on living expenses for an extended period of self-imposed unemployment.


Latest posts

Top Bottom