Severance Pay

Severance is a contractual or discretionary payment, not an entitlement: under the Fair Labor Standards Act it is a matter of agreement between an employer and an employee, and many workers receive none. Where it exists, offers are commonly framed as weeks of pay, sometimes per year of service, occasionally with continued benefits attached.

In runway planning, severance works as a lump-sum head start: weeks of pay convert to dollars at your take-home rate and extend the date your savings run out. It is also taxable wages, so the usable amount is smaller than the stated one. Because it is never guaranteed, a conservative plan sizes the emergency cushion assuming zero.