Money Matters

severance pay- take in lump sum or weekly?

As I posted last month, my mom got laid off after 28 years at her company.  She is getting 48 weeks of severance pay and she can choose to get it in a lump sum, or weekly payments.  The amount is the same either way.

The company has been laying off people at a fast clip..and while she doesn't think they will go bankrupt, it's always a possibility.  In this scenario, is there any reason to NOT choose the lump sum option? Obviously she will pay a ton in taxes, but I told her she'll get a big refund next year. 

They don't have any debt, so if she takes the whole amount, it will just sit in an ING account.

Re: severance pay- take in lump sum or weekly?

  • Lump sum. The present value of a lump sum payment now is more than that same amount spread out over a certain time in the future. Also, you want to make sure that she can still get the money while it's there. If they file for BK tomorrow, she may not get the rest of her payments.

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  • If I'm not mistaken, she'd be getting paid the same amount (or close to) whether she takes the lump sum or weekly pay.  Since it's so early in the year, she'll be getting more than 30 of the 42 payments if she was paid weekly anyway.  Lump sum she'd be guaranteed payment and the taxes would be taken out.  She'd have it sitting in ING earning interest and the lump would generate more interest by compounding earlier.  I'd say take the lump sum option.

    (Always think of the Lottery Option:  It's generally better to get paid in a lump sum in the beginning rather than taking the payments and losing out on potential earnings.)


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  • I would take lump sum.... I don't think you can collect unemployment until all weekly payments are made. 
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  • I also can't think of a reason not to take the lump sum, given the situation that you've described.
  • Ditto PPs about taking the lump sum, given that she's good with money and who knows what will happen to the company.  That's a pretty sweet severance.
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