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How to evaluate a severance package when considering early retirement

Accepting a severance package is a significant decision that some people are faced with towards the end of their careers. It’s important to carefully evaluate the conditions and benefits offered by your company so you can maintain a financially secure future. 

Severance package basics

When an employment contract ends abruptly, you may be eligible for monetary compensation as well as benefits through a severance package. For example, if your company is downsizing due to reorganization or a fall in profits, it is not uncommon to see layoffs. A severance package is not required by law and is at the discretion of your employer. A typical severance package will often include a monetary component plus benefits.

How to determine if the severance package is adequate

For most senior employees, sudden unemployment is challenging to manage. For this reason, it is critical to assess various aspects of a severance package before an agreement is reached. 

Assess how leaving impacts you emotionally

Early retirement is often a financial decision made when you feel like your financial future is secure enough to forgo employment. If you are offered a severance package, this decision to retire early may come sooner than you expect. Along with losing the financial security of a regular income, there can be feelings of resentment or unappreciation for years of loyal service. Review your package to ensure that the offer accounts for your dedication.

 Ensure the contract includes key incentives

To make early retirement easier, many companies add extra incentives to a severance package. For example, they might allow you to keep participating in the company’s health insurance plan or extend membership benefits at health clubs. Additional perks are continued use of company cars or keeping devices like laptops or phones. You could also qualify for yearly bonuses.

Run the numbers

Review your current financial obligations and determine whether the package covers your expenses. Consider paying off your mortgage, your children’s educational costs, or other lifestyle expenses you wish to maintain. Signing off on a low severance package can impact your ability to support your ongoing needs. 

Consider your future

A good severance package could be an unexpected but positive step forward. It can offer you a new sense of financial freedom to retire early, but it’s essential to review what you think is fair after years of service to an organization.