End-of-career TFR: what to do with your severance pay

How much you really get: the tax

TFR left with your employer is taxed separately: it isn't added to your other income for the year, but pays an average income tax rate calculated on a "reference income" linked to your years of service. The tax office later recalculates the tax and may ask for a top-up or give you a refund.

A rough example: €80,000 of TFR built up over 30 years gives a reference income of €32,000, with an average rate around 24%. The tax comes to about €19,000: roughly €60,000 arrives net.

If your TFR was in a pension fund, the tax is different and usually lower (between 15% and 9%), but you can only take part of it as a lump sum.

Rule number one: don't rush

In the weeks after the payout, offers almost always arrive: from the bank, the insurer, acquaintances. Many come with artificial deadlines ("only until the end of the month"). A sum this large deserves the time it takes to make a plan. Parking it for a few months in a deposit account or short-term government bonds costs you nothing significant and gives you time to decide well.

Priorities, in order

1. Emergency fund: 6–12 months of spending, easy to access.
2. Known costs in the next few years: a car, home improvements, help for your children. Keep these out of risky investments.
3. Debts: consider whether it makes sense to pay off your mortgage or other debts, using the criteria in the guide mortgage or invest.
4. Topping up your pension: what's left can become the source that covers the gap between your spending and your INPS pension, or the bridge if you stop early.

How to invest it: all at once or a bit at a time?

Research shows that, historically, investing everything at once has done better in most cases, simply because markets rise more often than they fall. But investing gradually, say over 12–24 months, reduces regret if the market crashes straight after. If you're about to stop working, peace of mind matters: a gradual entry is a reasonable choice, as long as the plan is set in advance and doesn't change with every headline.

To organise the money by when you'll need it, the bucket strategy is a very practical framework: a few years of spending kept safe, the rest invested for the long run.

What to avoid

• Expensive products sold as "safe": high-cost insurance policies and managed portfolios can eat a significant slice of your severance pay within a few years. Before signing, use the checklist in the guide on unit-linked policies.
• Everything in a single investment: a second home, a family business, a single stock. Your severance pay is often the capital you'll rely on for the next 25 years.
• Lending money without a limit: helping children and relatives is lovely, but decide how much in advance, so it doesn't eat into your own security.

For many people, the payout is also the right moment to ask how much they can spend each year for the rest of their life. That's the question the guide on living off your investments answers.