Laid off — the financial decisions that actually matter

Layoffs don’t usually cause bad financial decisions because the money is bad. They cause bad decisions because they compress time — pension elections, benefit cut-offs, equity deadlines, and a severance offer all land in the same two weeks, while you’re also processing the news. A framework is what keeps you from optimizing the small things and fumbling the irreversible ones.

First, buy yourself time

Before optimizing anything, calculate your runway — how many months the household can operate untouched. Until you know that number, every decision feels more urgent than it is.

Runway = cash on hand + after-tax severance + emergency reserves, divided by trimmed monthly expenses. Note that the gross severance figure is not your runway — a large lump sum dropped into an already-high-income year can be taxed near the top marginal rate (~48–54%).

Sort decisions by reversibility

This is the whole game. Some of these you can revisit; some you sign once.

Reversible — don’t rush	Irreversible — get advice first
Where to invest severance	Commuted-value vs deferred pension election
Whether to take the next job fast	Signing the release / settlement terms
RRSP contribution timing	Letting a benefits-conversion window lapse
Updating your budget	Missing an equity post-termination exercise window

Spend your scarce calm on the right-hand column.

The pension election is usually the biggest number

Don’t sign a pension election under time pressure

If you have a defined-benefit pension, the package may bundle a commuted-value vs deferred-pension decision — often the single largest, and most permanent, financial choice of your life, with a hard deadline. The tax trap alone (only part transfers tax-free to a LIRA; the excess is fully taxable cash now) can cost six figures. Read The commuted value decision before you sign anything.

What else needs attention — fast

Benefits are about to stop

Group health, dental, disability, and life coverage often ends within weeks. This matters most if your household has children, ongoing prescriptions, or a single dominant income. Check the conversion windows — some let you convert life or disability coverage to an individual policy without medical underwriting, but only for a short period after termination.

Equity won’t necessarily keep vesting

Don’t assume “it all keeps vesting.” Unvested RSUs and options usually stop at your termination date, and vested options typically carry a short post-termination exercise window (often 90 days). Get the exact dates from your equity plan documents — missing the window forfeits the value entirely.

The severance itself is a tax event

A large severance in a high-income year can compound the problem. Options to explore: spreading payments across two calendar years, or directing eligible amounts to an RRSP (you’ll need contribution room; the old retiring-allowance rollover only applies to pre-1996 service, which is now rare).

A clean decision order

1. Protect liquidity — establish your real runway first.
2. Map every deadline — pension, benefits conversion, equity exercise.
3. Separate the legal questions from the financial ones — an employment lawyer reviews the release; the financial modeling is a different exercise.
4. Keep severance uncommitted until the tax picture is clear.
5. Decide the frame: is this a bridge to the next role, or a full reset?

Checklist

• Calculate after-tax severance and total runway in months.
• List every deadline: pension election, benefits conversion, equity window.
• Don’t rush the commuted-value decision — it’s permanent.
• Check what happens to benefits, bonus, and unvested equity.
• Explore spreading severance across tax years or contributing to an RRSP.
• Keep the cash uncommitted until you’ve modeled the tax.

Related: The commuted value decision.