Taking a Severance Package
Photography by Tine Hoffman
Over the last year, buyout and job changes have become a hot topic locally. It begs the question “when taking a package or job change opportunities are presented, what does that mean for your financial plan?”
Northwestern Mutual Wealth Management Advisors Ben Beshear and David Shuley work with local and national executives who face these challenges regularly. Below they review considerations that need to be taken when considering accepting a buyout package or changing jobs.
Venue Magazine: What things should an executive or manager take when considering a package or job change?
Ben Beshear: One of the most critical aspects of your financial plan is understanding the complexities in your current compensation package. First, is the total value of your expected compensation package with a new company comparable to what you are receiving? Second, if you do take a package, how can you distribute that money in the most tax efficient way possible?
David Shuley: Another big consideration is being conscious of a potential tax burden. When you take a package via a buyout or severance, there is the risk of triggering a taxable event. This can be common when both accepting another job opportunity and getting a severance package at the same time.
BB: Between understanding the complete compensation package and being prepared for taxable events, it critical to take a look at your retirement plan. Whether your new compensation package (for example, salary, available retirement plan, health insurance benefits, etc.) will be commensurate to that of your previous compensation package is a big question.
VM: Is there a particular life stage where taking a severance package or changing jobs can have a massive impact on your financial plan?
BB: The truth is, anytime severance packages are offered or job changes come into the picture, your plan is going to be affected; sometimes positively, sometimes negatively. That being said, if you are anywhere near retirement, there are a number of additional factors that come into play – such as retirement distribution planning. This really involves coming up with a plan to make your money last
DS: I think Ben is exactly right. Financial plans get much more complex when retirement is introduced. At this point, additional factors come in to the conversation, such as longevity – how long your money needs to last – market conditions and the impact on your investments, inflation and taxes, long-term care needs, and leaving a legacy.
BB: One area we hear quite a few questions around is the topic of when to claim Social Security. Historically, the decision of when to claim Social Security may have been a simple one. The reality is there are numerous factors to take into consideration when deciding when to claim Social Security and these can have a big impact on your long-term plan. They might include: How will Social Security influence my taxes? Will working in retirement have an impact on the amount I receive? How does when I draw affect my benefit and my spouse’s? How can I maximize the overall benefit for myself and my family?
VM: So, what you are saying is considering a severance package or job change can have a massive impact on your financial plan at any stage of life. Also the closer you get to retirement, the more complex this decision becomes. While the thought of a package might seem attractive, it’s important to understand implications this can have on your financial plan. Any final thoughts?
DS: Executives and managers working in volatile industries should have financial plans that:
Are always focused on their objectives, including long-term and short-term goals and their risk tolerance.
Always have plans for the unexpected.
BB: If you are an executive or manager, taking a package or considering a job change can have a massive impact on your long-term financial plans; especially as you approach retirement. It is critical for your plan to:
Provide a steady and predictable and steady income for life
Preserve and manage your wealth to include a legacy
Mitigate the key challenges that can affect your retirement
To contact Ben Beshear, please call 513.366.3664, e-mail him at firstname.lastname@example.org or visit his/her Web site at benbeshear.com. This information is not intended as legal or tax advice. Not all products mentioned in this article are offered through Northwestern Mutual.
Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) and its subsidiaries. Ben Beshear and David Shuley are Representatives of Northwestern Mutual Wealth Management Company® (NMWMC), Milwaukee, WI, a subsidiary of NM and limited purpose federal savings bank.