Transparent method
The formula
Worked example
Example inputs
How to interpret the result
Severance runway measured only in months of essential spending misses a hard deadline that arrives independent of how carefully the money gets stretched. Employer-sponsored health coverage typically ends on a fixed schedule, and replacing it becomes its own separate, often substantial cost that a pure spending-runway number doesn't automatically include.
Before you rely on it
What to check
Add the cost and timing of replacing employer health coverage as a separate line item, since that transition has its own deadline independent of how long the severance cash itself lasts.
The common error
Where people go wrong with severance runway calculator
Calculating runway from essential spending alone without separately accounting for when employer health coverage actually ends. That transition brings a real, often substantial new cost that a spending-only runway figure doesn't anticipate.
Sensitivity evidence
How gross severance changes the estimated financial runway
| Gross severance | Estimated financial runway | Estimated net severance |
|---|---|---|
| $24,000 | 7.6 months | $18,000 |
| $27,000 | 8.1 months | $20,250 |
| $30,000worked example | 8.5 months | $22,500 |
| $33,000 | 8.9 months | $24,750 |
| $36,000 | 9.4 months | $27,000 |
Every input, tested
Which input moves the estimated financial runway most
| Input | Tested from | To | Estimated financial runway at each end | Swing |
|---|---|---|---|---|
| Monthly essential expenses | $4,500 | $5,500 | 9.4 months to 7.7 months | 1.7 months (20%) |
| Gross severance | $27,000 | $33,000 | 8.1 months to 8.9 months | 0.9 months (11%) |
| Liquid emergency reserve | $18,000 | $22,000 | 8.1 months to 8.9 months | 0.8 months (9.4%) |
| Estimated withholding | 23.0% | 27.0% | 8.6 months to 8.4 months | 0.2 months (2.8%) |
Two variables at once
Estimated financial runway by gross severance and estimated withholding
| Gross severance \ Estimated withholding | 21.0% | 25.0% | 29.0% |
|---|---|---|---|
| $24,000 | 7.8 months | 7.6 months | 7.4 months |
| $27,000 | 8.3 months | 8.1 months | 7.8 months |
| $30,000 | 8.7 months | 8.5 months | 8.3 months |
| $33,000 | 9.2 months | 8.9 months | 8.7 months |
| $36,000 | 9.7 months | 9.4 months | 9.1 months |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Gross severance | $30,000 |
| Estimated withholding | 25.0% |
| Liquid emergency reserve | $20,000 |
| Monthly essential expenses | $5,000 |
| Estimated financial runway | 8.5 months |
| Estimated net severance | $22,500 |
Where the inputs come from
Gross severance is the total amount promised in the separation agreement before tax. Estimated withholding is the tax rate taken from it, since severance is taxed as ordinary income and often withheld at a supplemental rate. The liquid emergency reserve is cash you could spend, and monthly essential expenses are your must-pay bills. Read the agreement for how severance is paid, as a lump sum or over time, and for continued benefits.
When the result stops applying
Severance may affect unemployment benefits in some states, since certain payments are counted as income. Health insurance costs through COBRA can be large, up to the full premium plus a fee. Taxes can differ from the estimate, and a lump sum can push you into a higher bracket for the year. Severance agreements often include release of claims that you should read carefully.
What to compare it with
See the runway with unemployment benefits on the unemployment runway calculator, and the reserve on the emergency fund page. The bonus tax and payment gross-up calculators help with withholding, and the health insurance and early retirement insurance pages cover coverage costs. Consider a short consult with an employment lawyer before signing.
People also ask
Frequently asked questions
Is severance pay taxable?
Yes, as ordinary income, and it is usually withheld at the supplemental rate, which may differ from your actual tax.
Does severance affect unemployment benefits?
In some states it can delay or reduce them, depending on how the payments are structured, so check with your state agency.
What should I do about health insurance after a layoff?
Compare COBRA continuation, a spouse's plan and a marketplace plan, since a job loss opens a special enrollment period.