Severance vs. Retirement Package

Severance and early retirement packages are hot topics during an economic downturn.

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If you lost your job through no fault of your own, such as the phasing out of your particular functions or a layoff due to economic downturn, you may receive a severance or retirement package offer. Companies offer these packages to ease the financial hardship caused by losing your job, but also as a way to avoid potential litigation, because you give up your rights to sue when you accept such an offer.


No law exists to force companies to offer financial packages to fired or laid-off employees. However, many companies include some sort of package in your employment contract or their policy manual. Your employer may also offer you a financial package if it had a good relationship with you or to encourage you to give up your legal rights. If you lose your job due to misconduct, you will rarely, if ever, be offered a severance or retirement package.


Severance is a financial offer that is generally made up of cash up-front as well as some continuation of benefits for a specific period of time. You may be able to negotiate with your employer, but generally, the severance offer will already have been crafted by the time you're laid off. A typical cash offer is one week of pay for each year of service. Benefits that may be extended include medical and dental insurance for a few months, and the services of a career consultant to help you with crafting a resume, interviewing and other job-seeking skills.

Early Retirement

If you're old enough to qualify for some form of reduced retirement benefits, a company wishing to lay you off may offer you early retirement. Your retirement package will typically include a severance offer as well as an ongoing pension. How much of a pension you receive depends on your company's pension plan rules. You generally must work until you are age 65 to receive your full pension benefits, but some employer pension plans allow you to retire as early as age 55 with reduced benefits, provided you've worked at the company long enough.


Don't immediately agree to the offer that is laid out before you. Your employer will give you some time to think about the offer, usually a week or two. If you feel it's unfair, you are well within your rights to negotiate for a better deal. Consider consulting with a labor lawyer regarding the fairness of your package offer.