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Decoding Your Severance: What You Need to Know

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  Published in Business and Finance on Saturday, January 24th 2026 at 8:32 GMT by The Globe and Mail
      Locale: CANADA

Decoding Your Severance Package: Beyond the Basics

Your severance package isn't simply a lump sum; it's a complex arrangement influenced by factors like your tenure with the company, your salary level, and your employment contract. It's crucial to thoroughly examine the details provided by your HR department. Don't hesitate to ask clarifying questions; understanding the nuances - such as whether it's subject to immediate vesting or has clawback provisions - can significantly impact your financial planning. Recent legal developments regarding age discrimination in layoffs also mean carefully reviewing the circumstances surrounding your departure, and consulting with legal counsel if necessary.

The Taxman Cometh: Strategizing for Severance Taxation

While a severance payment can feel like a windfall, remember that it's considered taxable income. The portion considered "ordinary" income is generally subject to standard income tax rates. However, portions of the payment structured as benefits (like extended health coverage) might be treated differently. Given the increasing complexity of tax laws, particularly with changes to provincial tax brackets and the introduction of digital tax services, consulting with a qualified tax professional or utilizing advanced tax software before spending any portion of your severance is essential. Proactive tax planning can minimize your tax burden and maximize the funds available for your recovery.

Debt Management: Prioritizing Financial Health

The immediate aftermath of a layoff isn't the time to incur further debt. Addressing existing high-interest debt, such as credit card balances and personal loans, should be a top priority. Explore options like debt consolidation loans - rates have remained surprisingly competitive despite recent inflation - or negotiating lower interest rates with creditors. Automation of payments, wherever possible, is highly recommended to avoid late fees and negatively impacting your credit score. The credit score remains a vital asset for future job applications and securing loans.

Investment Portfolio Review: A Moment for Strategic Reflection

Your investment portfolio represents your future financial security. A layoff shouldn't trigger panic selling, but it does necessitate a careful review. Assess your risk tolerance, time horizon, and overall financial goals. The volatility experienced in global markets throughout 2024 and 2025 underscores the importance of a diversified portfolio. Consider consulting with a fee-only financial advisor who can offer objective guidance without conflicts of interest - particularly important during a period of emotional stress. Robo-advisors also offer accessible and increasingly sophisticated investment management solutions.

Budgeting for Uncertainty: Embracing a Leaner Lifestyle

Creating a detailed and realistic budget is paramount. Track your income (including unemployment benefits, which, according to recent reports, are providing only around 60% of previous salaries) and meticulously analyze your expenses. Distinguish between needs and wants, and identify areas where you can significantly reduce spending. Subscription services, dining out, and non-essential entertainment are prime candidates for cuts. Remember to factor in potential healthcare costs, which have continued to rise. Regularly revisiting and adjusting your budget is key, as circumstances evolve.

The Emergency Fund: Your Financial Safety Net

A robust emergency fund is your most valuable asset during times of joblessness. Aim for 3-6 months' worth of living expenses, preferably more given the current economic climate. Prioritize replenishing or establishing this fund before making any significant purchases or investments. Consider high-yield savings accounts or short-term, low-risk investments to maximize returns on your emergency savings.

Looking Ahead: Long-Term Financial Recovery

Beyond the immediate financial adjustments, consider the long-term implications of your layoff. Invest in skills development and retraining - the demand for AI specialists and data analysts continues to grow. Network actively and leverage online platforms like LinkedIn to reconnect with former colleagues and explore new opportunities. Remember that a layoff is a setback, not a permanent defeat. With careful planning and a proactive approach, you can navigate this challenging period and emerge stronger financially.