Severance Pay 101: 3 steps to making sure you use the money wisely

HOUSTON – From Halliburton and Sysco to Landry’s and Vacations to Go, Houston companies are laying off thousands of employees. Some are fortunate enough to receive severance packages.

The money pay is supposed to help you out until you can get another job. Depending on how much you receive, you’ll have some big decisions to make on how you spend or save that money. Financial advisor Richard Rosso with RIA Advisors says you have three big decisions to make.

1. Figure out how much you need to live

Most of us are home now. This is a good time to make out a budget if you haven’t done that in a while.

“So we know, ‘This is how much we need to live,’” explained Rosso. "‘This is where we can cut.’ Do that as part of a severance package. Then hit the package. So at least I’ll have a baseline of what we need.”

Ask yourself how long you think it will take you to find another similar paying job. If you don’t know, and you don’t have emergency savings available to pay bills, you will need the money for that.

2. Exercise your stock options

Some severance packages come with stock options. Cashing them out right now while the market is probably not a good move. Find out how much time you have to buy and sell company stocks.

“Once you leave the company, you’re going to have an expiration date on those options,” Rosso said. “You need to be aware of where your stock is now. Are you in the money? Are you making money on these options? Most likely a lot of people are underwater.”

3. Fund your healthcare savings account

Lastly, if you haven’t funded your healthcare savings account, consider using some of your severance pay to do that. This is money you can use for your healthcare in your retirement. The funds roll over year to year if you don’t spend them; and an HSA may earn interest or other earnings, that are not taxable.

“I can then tap that account later, completely tax-free,“ Rosso said.

Consider getting financial advice

Rosso said you may want to meet with a financial advisor to help with planning. Sometimes after just having lost a job, people are very emotional and not ready to make these big decisions without some guidance or advice. He has more ideas to consider if you are risk of getting a severance package here.


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Passionate consumer advocate, mom of 3, addicted to coffee, hairspray and pastries.