 Managing Your Severance Click Here for your Severance Worksheet **(Polaris Advisors, the website, the worksheets and the seminars are not endorsed,reviewed or approved by either Gillette or Procter and Gamble. Polaris Advisors is an independent Financial Planning Firm, and prospective clients must make their own assessments of the accuracy and validity of the material presented) The Gillette Company Severance Plan provides up to 94 weeks of pay in the case of a “Change of Control” like the merger with P&G. In the past, you could make a choice between taking this income as continuing pay, or taking it in a lump sum. Unfortunately, the "Lump Sum" option expired on 12/31/05. After that date, all severance must be taken as continuing income.
While this change reduces your options to manage your tax rates between years, it makes the decision about when to start your Pension easier. In many cases, the answer is as soon as possible, but individual circumstances require some analysis.
 Here’s the heart of the issue. In the Pension calculation for the Early Retirement qualification, each year corresponds with an additional 3% Pension payment. (Unless you are switching from the AGE reduction calculation to the POINT reduction calculation) If you Pension was $100, and you waited a year, you would lose $100, and get back $103 from then on. So the basic break even calculation is 33 years to get back the $100 you passed up. Even if you assume higher tax brackets for doubling up with Pension and Severance, most folks find the break even too long to justify.
But things get a bit more complicated if you receive Unemployment Compensation, or other compensating income, and if you accrue another point or two in the very near future. (This applies to those on the POINT system. Those on the AGE system accrue value monthly) In such cases, the lost Pension is reduced by Unemployment, and you accrue the additional points, and corresponding Pension growth, in only a month or two. So, you only lose 1/12th or 1/6th of a year's Pension, and get UC income in its place. (Unemployment ends when you begin to receive your Pension.)
Your best sources for various Pension estimates is the website calculator, and directly from HR. Whether you get Unemployment or not depends on State Examiners, and Appeal Boards. To see if this is worthwhile, you can use the attached worksheet. It will give you an estimate of how long your break even is, for various assumptions about Unemployment, medical costs, and when you accrue more points.
For some, this decision can be difficult.* Rules change, Unemployment qualification is unknown, and your spouse's wages, benefits or other sources of income can affect your decision. We would be glad to make an appointment with you to go over your specific situation. Just give us a call for a complementary meeting.. Click Here for your Severance Worksheet * These worksheets alone do not constitute a complete Financial Plan. Please consider all aspects of your situation with competent tax, financial and legal counsel before making any decision to leave employment. Polaris Advisors, LLC is not responsible for any use or misuse of these tools by persons who have not contracted with Polaris Advisors LLC for Financial Planning Service | |||||||
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