Severance Package Mastery: Your 40+ Layoff Strategy To Launching Your Business
Let's be real: That layoff, that severance package, can feel like a whole gut-punch of fear, a simmer of anger, and maybe betrayal. But for many women, it's often the divine nudge they've been waiting for—the one that finally ignites the entrepreneurial fire corporate life tried so hard to suppress.
What feels like a career crisis today can be a spark for the bigger, better life you were truly meant to live.
On top of all those swirling emotions, wading through a severance package with its complex benefits can feel utterly overwhelming—like a mess of endless information that feels like it’s written in another language.
As your Job Exit Strategist and financial planner, we’re going to break down the messy numbers, dodge the sneaky tax traps, and pinpoint the key non-cash perks most don’t think to negotiate.
This isn't just about an exit; it's about turning what may feel like lemons into lemonade; using what may feel like an end to build the path to your new beginning.
Severance Package vs. Severance Agreement: The Crucial Difference
I know the sound the same but they are very different and not knowing the difference can mean less money to fund your future plans.
Term: The Severance Package
What It Really Is: The Offer—all the money, benefits, and support they're putting on the table.
Takeaway: This is just the starting point, not the final order.
Term: The Severance Agreement
What It Really Is: The Legal Contract that includes a Waiver of Claims (your promise not to sue them).
The Takeaway: Your employer wants your signature for their peace of mind—NOT yours. This makes your signature valuable—especially if you’re over 40—but we’ll cover that a little later.
Keeping it Real: Your company wants your signature to tie up loose ends and gain certainty that they won’t be sued in the future; essentially, you may be signing away rights to the ability to sue. Once you sign, your leverage is gone.
Do not sign this agreement until you've squeezed every last bit of value out of it. If you sign too fast, you lose all your negotiating power.
⚠️ While I am giving you strategic financial guidance, a severance agreement is a legally binding contract. Before signing, you absolutely must consult with an employment law attorney and a tax professional (CPA) to review your specific situation.
The Financial Deep Dive: What's in the Package
Severance Weeks: The number of weeks of salary they are offering. This is your biggest negotiation point and what can help fund your living expenses while growing your business.
👉🏿 Note: The industry standard, what's considered "gold," is: 1–2 weeks of pay for every year you worked there. Consider negotiating (if you can) for anything less, especially if you’ve worked at the company for awhile.
Unused Paid Time Off (PTO, Vacation Pay, Sick Leave): Is this being paid out in a separate check or included? Some states/companies require this, but it’s still money you earned!
Bonus/Commission: Payout of earned-but-not-yet-paid amounts. Don't let them forget to true-up your performance pay.
Potentially: Temporary continuation of benefit with your current employer's assistance (subsidy)
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⚠️ TAX NOTE: Everything listed above (Severance Weeks, Unused Vacation, Bonus) is generally treated as regular, taxable income. Read below for more guidance.
The Critical Tax Impact: Don't Let the IRS Be the Boss
Let's be crystal clear: Severance is fully taxable income. It's generally treated as regular income for federal and state income tax purposes, Social Security, and Medicare.
Here's the often-surprising truth:
The Severance Tax Trap: Why Your Cash Flow Takes a Hit. That big lump-sum severance? It often gets withheld for taxes at a surprisingly high rate—sometimes a flat 22% federally (as of this writing). And yes, this flat rate typically includes unused paid time off and bonuses.
This isn't necessarily your final tax bill, but it can drastically shrink the cash you get upfront, making it feel like you're paying more than you should. A tax review & strategy can make a huge difference in keeping more of your startup seed money in your pocket when you need it most.
The tricky part often comes down to how you get paid. Think of it as deciding (if you have the option to choose) whether to take all your coffee at once (lump sum) or sip it slowly (continuation):
Payment Method: Lump Sum Payment
Tax & Cash Flow Consequence: You can temporarily bump yourself into a higher tax bracket; your company will often withhold a significant chunk as if it were a bonus. You feel the immediate cash flow impact of that higher withholding.
Guidance: Talk to a CPA. Seriously. Ask about spreading payments out or how to adjust your personal tax planning for the year.
Payment Method: Salary Continuation
Tax & Cash Flow Consequence: Keeps your tax rate steadier; often means less withheld upfront and, even better, sometimes keeps your company benefits (like health insurance) going for longer.
Guidance: If you have a choice, consider asking for this option. It's typically more predictable for taxes and can extend those crucial company health benefits—a huge win for your financial transition plan!
⚠️ TAX NOTE: Talk with a tax professional about the impact of your severance to your taxes based on your specific tax situation.
Your Strategic Severance Package Advantage: Being 40+ is Your Secret Weapon!
As an employee over 40, you actually have extra protection thanks to the Age Discrimination in Employment Act (ADEA) and the Older Workers Benefit Protection Act (OWBPA).
Companies know this is a big deal, which is why their severance offers to employees 40+, like you, are often inherently better. Use this advantage to master your job exit strategy.
In most cases, your severance (if 40+) must include items like:
Mandatory Review Period: A minimum of 21 days (and often 45 days if it’s part of a group layoff) to carefully review the agreement. This is not a suggestion; it’s the law. Use it every single day.
The Attorney Warning: They must explicitly advise you in writing to consult with an attorney before you sign. This is a subtle signal of the value you are waiving.
The Revocation Grace Period: An additional 7 days to change your mind and revoke your signature after you’ve signed. That's a built-in safety net!
The Disclosure Chart (in Group Layoffs): If you are part of a larger layoff, they are required to give you a chart listing the job titles and ages of all employees considered for the layoff—both those who were let go and those who were retained. This is pure data gold to help you spot a potential issue.
💡 Use this time wisely. Talk to a lawyer, chat with a financial professional (hello, that's me!). This isn't the moment to be drained; it's the moment to demand what you're worth.
Don't Rob Future You: A Word on Your 401(k) and Retirement
Reconsider cashing out of your 401(k) to fund your business launch.
That 401(k) isn't a piggy bank for emergencies; it’s an army of compounding soldiers that are faithfully marching towards building your future wealth.
If you cash that money out, you'll get hit with penalties and taxed like crazy. You will literally be robbing your future, wealthy self to pay for your temporary financial need.
💡 P.S. Worried about rolling over the old 401(k)? That is not a priority right now. It can absolutely wait until the dust settles.
And in some cases, like if you’re over the age of 55, a public service worker over 50, it may be better to keep it in your 401(k) plan.
⚠️ A Quick Note on Company Stock (RSUs & Options): Don't lose sight of these! Unlike your 401(k), vested stock options (like ISOs and NSOs) often have a very short, strict expiration window (sometimes as little as 90 days) after termination.
If you have unvested RSUs, they are typically forfeited. You must check your plan documents immediately and talk to a tax professional before your right to exercise your vested options expires. Timing and taxes are everything here.
Your Severance & Unemployment Benefits: What to Know
Your goal is to keep every penny. Your state's specific rules determine whether you can collect unemployment benefits while getting severance.
Simplified Explanation: Imagine your state views your severance as a paycheck. If it's a big lump sum, they might spread it out over several weeks, delaying when your official unemployment payments can start. Other states might allow some overlap.
💡 Don't guess. Check your state’s specific unemployment rules to get the facts for your situation. Your goal is to keep every penny you've earned and are entitled to.
The WARN Act: Your Right to Notice (and Pay!)
This is another critical piece of your exit strategy, especially if you were part of a larger layoff. The federal WARN Act (Worker Adjustment and Retraining Notification Act) can significantly impact what you are owed.
When WARN Matters:
The WARN Act requires large employers (generally 100+ employees) to give at least 60 days' notice before a mass layoff or plant closing. If they fail to give notice, they are liable for back pay and benefits for up to 60 days.
The Crucial Connection: Don't Get Shortchanged
If your layoff was part of a major workforce reduction and you didn't receive 60 days' notice, that payment for lack of notice may be included as part of your overall exit package.
⚠️ Alert: Your employer may attempt to treat legally mandated WARN Act pay (for their violation) as part of your overall severance pay. Make sure you know which amount is severance and which is legally mandated pay.
Make sure you know which part is severance and which part is legally mandated pay. This clarity is vital for your negotiation and overall financial understanding.
Resource: You can find official information on the WARN Act from the U.S. Department of Labor: https://www.dol.gov/general/topic/termination/plantclosings
How to Turn Your Severance into a Business Launchpad (The Strategy)
You have a handle on your severance, but you may be thinking, “OK, what do I do once I get the money”? I’m so glad you asked.
For a starting point, consider breaking up the money as follows to maximize how the funds can truly serve as your launch into entrepreneurship:
Category: Lifestyle Runway:
Percentage of funds: 60%
Why: This is dedicated cash to cover your personal living expenses for a set time. It buys you F.O.C.U.S. and precious time, the two most valuable assets for a new solo CEO.
Category: Marketing & Systems
Percentage of funds: 30%
Why: This is your investment in your business setup: your website, client management tools, your funnel software, and expert coaching.
Category: Strategic Wellness & Counsel
Percentage of funds: 10%
Why: Set aside for professional help (like a CPA or legal review) and, yes, some much-needed self-care.
Negotiating for Value Beyond the Dollar Amount
COBRA Premium Subsidy: Health insurance premiums after leaving a job are usually a savage hit to your wallet. If you can ask your company to pay, or heavily subsidize, your COBRA premiums for a set period (e.g., the first two or three months). This is pure cash in your pocket and buys you crucial time.
Positive, Comprehensive Reference Letter: Don't just rely on a vague HR line. Get a specific letter from your direct manager outlining your key achievements and stellar capabilities.
Vesting Schedule Acceleration: If you have stock options (RSUs), talk with your tax professional about the best way to handle these.
Use Your Severance to Move from Dreaming to Reality
You now have a strategic blueprint to make this transition to your business a reality. I get this is a lot to think about.
🔥 Your Next Step: Stop Guessing and Start Growing
Ready to stop just talking about your plan and start actually funding it? Let's check your financial confidence and strategy—before you sign anything or launch a single pitch.
Take my free, 5-minute quiz to get tailored guidance on your unique circumstances:
Are You Ready To Quit Your Job? Let's Double-Check Your Plan.
👉🏿 Link to Quiz: https://www.taniapbrown.com/quiz
⚠️ While I am giving you strategic financial guidance, a severance agreement is a legally binding contract. Before signing, you absolutely must consult with an employment law attorney and a tax professional (CPA) to review your specific situation.
