How long will your severance last?

What you get to keep won’t necessarily match the number on your agreement.

Start with the take-home number.

The figure in your separation agreement is gross. At least three things will come out of it before you see anything.

Taxes. Whether severance is a lump sum or paid on a schedule, state and federal income tax withholding, Social Security, and Medicare will come out of it. A lump sum usually makes it more acute.

Health insurance. This one catches some people by surprise. Your employer was probably covering most of your premium. Once you’re on COBRA or your own plan, you’ll be responsible for the full cost. Before you plan anything, find the real number.

Other bundled items. Do you have life insurance? Disability insurance? Other perks? Take a look at what your employer is covering that’ll cost real dollars to continue.

Find your monthly number

What do you spend, really, each month? Your actual expenses may not match your budget.

Pull the last three months of bank and card statements and add them up. Many people find their expenses are more than they’d have guessed, often showing up in small recurring stuff. Do this up front and subtract the ones that can stop: commuting, lunches out, dry cleaning, parking.

Do the math.

Severance, after tax
  minus COBRA for the months you'll need it
  minus benefits you now pay for yourself
  divided by your  monthly spend, adjusted down for work costs that stopped
  = the # of months you have

Then, make it tangible.

• Take one month off the end. Final paycheck timing, unexpected expenses, or other life things have a way of popping up. Plan for less and you’ll be pleasantly surprised if don’t wind up needing it.

• Figure out where you’d need to supplement. This is an activity worth doing before it’s urgent. Pick the balance where you’d need to take a bridge job, a contract, or a pay cut. Knowing that ahead of time, without bills sitting due, makes it just a math problem and not a last-minute surprise.

Check unemployment insurance options.

Severance and unemployment interact differently in every state. Some states treat severance as wages and delay your benefit until the severance runs out. Some pay unemployment alongside. Some depend on whether it's a lump sum or salary continuation, or on how the separation agreement is worded.

Look up your own state's rule, and file when you're eligible. There's often a waiting week.

Don’t wait until it’s over

“I’ll wait until my severance runs out, then figure it out.” We hear this over and over again. Take our word for it: doing something while the clock is running out is arguably more stressful than planning ahead, especially on this. Spending your time waiting to figure it out eats into your best asset that you can’t get back later (time!).

We’re not suggesting you launch something in week two. The first stretch of time once you’ve been laid off is for processing and remembering who you are outside of the org chart.

There’s a difference between resting and stalling, and the test is what you’re doing while the severance is winding down. Plan ahead and it’ll feel like you have all the time in the world.

Working out what's next? Effective Immediately is our private community for people building something of their own after corporate life. It’s not visible to your network, and the people there who are a few months ahead are ready to share what helped them get through this stage.