Receiving a severance package can be both a relief and a source of uncertainty, especially if you’re also thinking about retirement. Whether you’re in your 50s or already eyeing your final years in the workforce, how you handle your severance and benefits now could significantly affect your future financial security.

This guide from 1st Choice Financial Services outlines key elements of a severance package, how they connect to your retirement goals, and why partnering with a trusted retirement advisor in Central Pennsylvania can help you make smart, forward-looking choices.

Your Severance and Benefits: What To Consider

A severance package often includes more than just a check. While the details vary by employer and job role, understanding how each piece works and how it may support or complicate your retirement planning is an essential step.

The Severance Package

You may be offered a lump-sum payout or installments spread over several months. Where available, this choice can affect your tax bracket, timing of benefits, and even your eligibility for unemployment insurance in Pennsylvania. If your specific plan allows for negotiation, you might be able to request additional months of healthcare or continued retirement plan contributions.

Don’t overlook the tax impact. Severance pay is generally taxed as ordinary income, which may cause a spike in your taxable income for the year. This could affect your eligibility for credits or deductions, or even nudge you into a higher tax bracket.

Healthcare Coverage

When employment ends, it’s vital to understand your health insurance options. Depending on your situation, you may be able to continue coverage through COBRA, join your spouse’s plan, or explore options through the ACA marketplace. The right choice often depends on factors like household income, timing, and your overall health needs.

Stock Options and Other Benefits

Stock options and deferred compensation plans can be valuable components of your severance package, but they often come with complex rules.

Each type of equity compensation—such as non-qualified stock options (NSOs), incentive stock options (ISOs), or restricted stock units (RSUs)—is treated differently. If you’re laid off, check your employer’s deadline for exercising any vested options; this window can be as short as 90 days. Missing it may result in forfeiting potential income.

Some employers also offer deferred compensation plans to higher earners, allowing you to delay income until a future date, like retirement or termination. These plans often have strict distribution rules.

Working with a financial professional who specializes in wealth management in Harrisburg and the surrounding areas can help you evaluate these benefits in the context of your overall retirement plan.

The Critical Link to Retirement Planning

Your severance package isn’t just a short-term paycheck; it can play a key role in supporting your retirement goals, especially if you’re close to retirement age or in a financial transition. This is an opportunity to take a fresh look at your retirement planning in Pennsylvania.

Boosting Your Retirement Savings

If your financial situation allows, you may be able to use part of your severance to make additional contributions to a retirement account, such as a traditional IRA or Roth IRA. This move could provide tax advantages, depending on your income and eligibility. In some cases, a severance payout might also qualify as earned income for contribution purposes.

It’s also worth considering how this lump sum affects your current savings strategy. Will you need to draw from your retirement savings sooner than expected? If so, adjusting your withdrawal strategy could help extend the life of your nest egg.

What To Do With Your Retirement Plan

If you have a 401(k), 403(b), or 457(b) through your former employer, you’ll face a few options—each with its own pros and cons:

• Leave the funds in the employer’s plan (if allowed)
• Roll over the balance into an IRA
• Cash out (which typically results in taxes and early withdrawal penalties)

Rolling over your account into an IRA is often a favorable option, as it can offer more investment flexibility, lower costs in some cases, and no immediate tax consequences if done correctly.

Seeking Professional Advice in Making the Right Calls

Severance decisions and benefit transitions don’t happen in isolation—they ripple through the rest of your financial life. Each choice you make now could affect your tax liability, long-term savings growth, and even your healthcare coverage in retirement. That’s why it can be helpful to approach these decisions with a comprehensive strategy in mind.

When the Stakes Are High, So Is the Value of Guidance

For many in Pennsylvania, navigating these decisions without professional guidance can feel stressful. From understanding the fine print in your severance agreement to determining the best way to manage your 401(k) rollover or IRA contributions, the financial consequences of each step can be significant.

Working with retirement advisors in Central Pennsylvania can provide the clarity you need during a time that may feel uncertain. Skilled advisors can help you:

• Evaluate your severance and benefits from a long-term perspective
• Understand the tax impact of lump-sum payments and retirement account rollovers
• Plan withdrawals or contributions with your future income needs in mind
• Coordinate your healthcare decisions with retirement goals

Local Knowledge Matters

Laws, tax treatment, and plan structures can vary by employer and region. Having access to a retirement advisor in Harrisburg, PA, who is familiar with both the local employment market and Pennsylvania-specific retirement considerations can make a meaningful difference in how well your plan fits your needs.

Local Retirement Support From 1st Choice Financial

Your severance, healthcare, and retirement savings are critical pieces that can either strengthen or strain your retirement outlook for years to come. However, you don’t have to navigate this transition alone.

As experienced retirement specialists in Central Pennsylvania, 1st Choice Financial Services, Inc., an independent advisor firm headquartered in Camp Hill, offers comprehensive financial solutions to individuals and families in Harrisburg, Hershey, Halifax, Lancaster, Lebanon, Enola, Mechanicsburg, and surrounding communities.

We understand the financial realities and retirement goals of people across the region—and we’re here to help you make confident, informed decisions about what comes next.

Let’s work together to help protect what you’ve built and keep your retirement goals moving forward.

If you’ve received a severance package or are preparing for a career change, we welcome you to schedule a complimentary consultation.

Investment advisory services offered through Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser. The views, statements and opinions expressed herein are those of the  1st Choice Financial, and not necessarily of Foundations or their affiliates.  The content provided is for educational purposes only and the views reflected are subject to change at any time without notice.   No investment, legal or tax advice is provided.   Always consult with a professional.  Foundations deems reliable any statistical data or information obtained from  third party sources that is included in this article,  but in no way guarantees its accuracy or completeness.