A Severance Package Is The Ultimate Catalyst For Early Retirement – Technologist

Retiring early with a severance package is one of the smartest ways to leave the corporate world. Walking away without trying to secure one could leave tens of thousands, or even millions, on the table.

I also believe that retiring early is better than retiring rich. For those who choose my preferred retirement path, negotiating a severance and getting laid off instead of simply quitting is essential. The severance provides a financial cushion, helping you navigate the early stages of retirement, especially during the critical first year of uncertainty.

The main resistance to this idea usually comes from employees, whether outperformers or underperformers, who don’t believe severance negotiations are possible. “Why would a company pay me to leave?” is the most common question I hear. Some even view asking for a severance as dishonorable, as if their life’s purpose is to serve their employers forever. How unfortunate.

If you believe something isn’t possible, it won’t be. That’s why I like to share real-life examples of generous severance packages whenever I see them. These examples help show what’s possible. Because once you know what’s possible, you gain the courage to take action.

A Great Severance Package Offered By Automattic

Automattic, the creator of WordPress, has powered Financial Samurai since 2009. I’m grateful for their content management system, which has made it relatively easy to start and maintain my site for so many years. Without Financial Samurai, my retirement journey wouldn’t have been nearly as fulfilling.

WordPress is an open-source system that allows developers to provide additional value to website owners and its visitors. For instance, I recently upgraded my comment system using a new plugin, to improve dialogue and reduce spam. The creator of the plugin gets to charge a fee or ask for a voluntary contribution.

In an effort to reduce long-term company costs, Automattic offered a generous severance package to its employees. Employees who wanted to quit didn’t even have to negotiate one. Here’s what the CEO outlined in his blog post.

So we decided to design the most generous buy-out package possible, we called it an Alignment Offer: if you resigned before 20:00 UTC on Thursday, October 3, 2024, you would receive $30,000 or six months of salary, whichever is higher. But you’d lose access to Automattic that evening, and you wouldn’t be eligible to boomerang (what we call re-hires). HR added some extra details to sweeten the deal; we wanted to make it as enticing as possible.

I’ve been asking people to vote with their wallet a lot recently, and this is another example!

159 people took the offer, 8.4% of the company, the other 91.6% gave up $126M of potential severance to stay! 63.5% were male. 53% were in the US. By division it impacted our Ecosystem / WordPress areas the most: 79.2% of the people who took it were in our Ecosystem businesses, compared to 18.2% from Cosmos (our apps like Pocket Casts, Day One, Tumblr, Cloudup).

18 people made over 200k/yr! 1 person started two days before the deadline. 4 people took it then changed their minds.

Some Lucky Employees Got Paid to Walk Away

It’s impressive that 8.4% of Automattic’s workforce voluntarily accepted the severance package. This high percentage is likely due to the generous offer, a potential difference in company ideology, and employee doubts about upside opportunities. I assume Automattic planned for 5% to 10% of employees to accept, so 8.4% falls on the higher side of that estimate.

In retrospect, to cut costs more effectively, Automattic might have been better off requiring all employees to return to the office five days a week, similar to Amazon recently. Doing so likely would have led to voluntary departures, thereby saving the company millions from having to pay out severance packages.

The luckiest Automattic employee may be the one who started just two days before the severance deadline, effectively winning a $30,000 lottery—or more, if their salary exceeded $60,000. On the flip side, the unluckiest employees are those who quit just before the CEO announced the severance package.

When companies seem unstable, quitting can make sense, especially if you have a better offer elsewhere. But leaving without another job lined up is risky. In these situations, it’s often better to negotiate a severance package, as struggling companies often plan mass layoffs anyway.

You can sense the CEO’s passion for Automattic and commitment to its open-source mission from his blog post. He also seems emotional about the employees who left, which leads me to believe that those who stayed will be rewarded if things improve. When you’re also the founder, you take things more personally given the company feels like your baby.

An Easier Time Negotiating A Severance Package In The Future

For those still with Automattic, there’s also comfort in knowing that future severance packages are likely to match the current one: $30,000 or six months’ salary, whichever is higher. This precedent makes it easier to negotiate individual severance packages off-cycle, armed with the knowledge of what’s been offered before.

If you’re planning to negotiate a severance package, reach out to former employees who were laid off to learn what they received. You can also ask HR for this information, but keep in mind they may inform your manager about your inquiry.

Once you understand the types of severance packages your company has offered in the past, you become a stronger negotiator. You know the potential baseline and feel more confident raising the topic.

If Automattic’s Severance Package Was Offered To You

What if your company offered you a voluntary severance package like the one from Automattic? Would you take it?

I certainly would have if it had been offered to me in 2012 when I left. With a base salary of $250,000, I would have received a $125,000 severance check. But I wouldn’t have stopped there.

I would have also negotiated for my deferred cash and stock compensation, as well as asked for WARN Act pay equivalent to three months’ salary.

Even if they had initially declined, I would have proposed staying on to train my replacement and ensure a smooth transition. I would have also argued that my deferred compensation was well-deserved, as it was tied to my previous bonus payments.

Whether you want to retire early or explore something new, receiving a severance package gives you the time and financial cushion to decide your next move. If you were living off 50% of your gross salary when you received Automattic’s severance package, you could maintain the same lifestyle for a full year without dipping into your savings.

Everything Is Negotiable When It Comes To A Separation

In the CEO’s post to employees, he mentioned, “Four people took it, then changed their minds.” This shows the CEO was flexible. Most reasonable executives are willing to work with employees to create the best possible arrangements for both parties. After all, companies offer severance packages to protect their reputation and foster goodwill.

Given I would have accepted Automattic’s severance package at 34, I would have also accepted it at 35, 36, 37, 38, 39, and 40 if it was offered. When I was 23, my ultimate goal was to retire by 40. I figured that if I saved and invested 50% or more of my salary for 17 years, it would be enough to last me the rest of my life.

If you’re patient, a generous severance package may come your way as well. If you so happen to get a voluntary severance package offer the year you planned to quit anyway, you will feel likely you’ve won the lottery.

Two Types Of Severance Package Scenarios

As a savvy employee striving for financial freedom, you now understand there are two types of severance package scenarios: 1) those offered voluntarily, and 2) those you must initiate and negotiate yourself.

If you opt for the former, you’ll need to patiently wait while possibly engaging in quiet quitting. And if you want to speed up the process of getting laid off, you might intensify your quiet quitting efforts.

Knowing you have two opportunities to receive a severance package makes quitting without one an even worse decision. Even if you have a great job offer lined up, you can still negotiate a severance package by delaying the start date with your new employer. In fact, having a new job offer should give you even greater confidence to negotiate!

A Severance Package Is Your Catalyst To Retire Early

The main reason people don’t leave jobs they dislike, even when they’ve saved enough, is fear. They fear that retiring early might be a financial mistake or worry about losing their identity and status. Without something new to focus on, they fear they’ll feel aimless.

I had these fears too, which is why I tried to plan ahead. The one more year syndrome is hard to break without clear intention.

Even after negotiating my severance package, I made sure to stay on for two months, collecting my paycheck, before my three months of WARN Act pay kicked in. Once I knew I was leaving, I wanted to drag out the process for as long as possible to give me more time to prepare for an uncertain future. In a way, it’s similar to delaying the close of escrow for a home to give yourself more time to build your financial reserves.

If you’ve been thinking about retiring for a while, the severance package provides you a financial cushion to allay your fears. It is a gift you should strongly consider accepting.

After 10 years into my career, I was already becoming disillusioned with the desire to make a lot more money. Nobody I knew who were crazy rich seemed happier. At age 34, I was also confident I could find another finance job if early retirement didn’t work out. So I took the plunge—and three years later, my wife did too at age 35.

If you’re not happy with what you’re doing, change course. You’re doing yourself a disservice by continuing to stay miserable when you don’t have to be.

Reader Questions And Suggestions

Would you have accepted Automattic’s severance package offer? Why do people who want to retire early still quit their jobs without trying to secure a financial cushion. What was your catalyst for retiring early?

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