Laid off with a severance package: how long does it actually last?
A severance number is a gross number. After tax — and against a real monthly burn rate — the runway it buys is usually shorter than it looks. Here's how to size it honestly.
If you've been laid off, the severance figure on the letter is the first thing you anchor to — and it's the wrong number to plan around. Two adjustments turn it into something you can actually budget: tax, and your monthly burn rate.
A severance package is taxable income
Severance is taxable, like salary. So a "$45,000 package" is not $45,000 of runway. Depending on how it's paid and what else you earn that year, a chunk goes to tax before it reaches you.
It helps to know your rate going in. On a $90,000 Ontario salary, take-home is about $65,800 — an average tax-and-deduction load near 27%, with a marginal rate of roughly 30%. That marginal rate matters most for a lump sum: extra dollars stacked on top of your regular income are taxed at the top of your bracket, not the average. You can check your own figure with the take-home pay calculator.
Plan with the after-tax number, not the headline. The gap between "the package" and "what lands in my account" is where people overestimate how much time they have.
Then divide by what you actually spend
Runway is after-tax severance divided by your monthly cost of living — so the honest version needs a real burn rate, not a guess. For an Ontario household, Statistics Canada puts current consumption (the day-to-day spending, before income tax and pension contributions) at roughly $82,000 a year, or about $6,800 a month, with shelter alone near $2,450 a month. Your number will differ, but it's the right anchor.
Put together: an after-tax severance of, say, $33,000 against a $6,800 monthly burn is roughly five months of runway — not the "almost a year" the $45,000 sticker might have suggested. Trim the burn (the cost-of-living benchmarks show where the big categories sit) and the runway stretches.
A few moves that extend it
- Separate needs from wants before you cut — shelter, food, and transport are the load-bearing categories.
- Factor in EI if you qualify; it changes the math but rarely replaces a full income.
- Don't raid registered accounts first. An RRSP withdrawal in a year you still have severance income is taxed at your marginal rate — often the worst possible time to pull it.
The takeaway
A severance package buys time, but less than its face value suggests. Convert it to after-tax dollars, divide by an honest monthly burn, and you get the number that actually matters: how many months you have. Knowing that figure early is what turns a layoff from a panic into a plan.
Take-home and cost-of-living figures delivered by Metrestick. Underlying data: CRA 2026 federal & provincial income-tax parameters and Statistics Canada Survey of Household Spending (Open Government Licence – Canada / Statistics Canada Open Licence), 2026. Severance example figures are illustrative.