by Jackie Porter, Carte Wealth Management
No one wants to hear the words “It’s over”- especially from their employer. For many people, the relationship they have with an employer will be the longest relationship they will have in their lives. According to the Business Insider, during their lifetime, the average worker will spend over 90,000 hours at work. Consequently, it can be a very large blow to the ego, to hear that this relationship is no longer valued or wanted, often after many years. If you are going through career transition, the important thing is to work with an adviser who can ask you thought provoking questions, to help you to think through the implications of decisions you will make at this crucial time in your life.
Consider retaining the the services of a legal professional who is familiar with the implications related to the termination of your employment. Don’t sign off too quickly on a termination letter, no matter how tempting it may be in the moment to do so”. When an employee feels a termination was unexpected, there may be an initial shock period. This can be especially true in a downsizing situation when an employee may be tapped on the shoulder for no particular reason. Feelings of anger, guilt, and the surprise element may lead them to want to sign off on a termination and final settlement and release letter “just to get it over with”. The key is to take the time to speak with someone who is familiar with their options to determine whether or not the settlement being offered is being fair and legal based on Employment Standards Legislation.
In addition, if you are facing transition, be sure to get a copy of your Record of Employment (“ROE”), so that the paperwork can be filed with Employment and Social Development Canada as soon as possible.
Work with an advisor who can help you to understand how your severance package will be paid and what options for allocating the payments may be available to you. Is there a severance and will it be paid out in one lump sum? Will some of the severance be paid now and the remaining paid after a period of time, say 6 months? Will some of the severance be contingent on not finding another job? Will it be a working notice termination? Will the severance package delay eligibility for employment insurance? All of these scenarios will require different contingency planning strategies for a person facing sudden unemployment or transition.
Learn how classifying your severance as a “Retiring Allowance” can help you to reduce taxes paid on the settlement. If you have worked for your employer for many years and are currently being downsized, you may be eligible to “roll over” funds from the settlement into an RRSP without reducing your current RRSP contribution room. A retiring allowance can be a useful tool for an employee with long service to defer taxes on their settlement while maintaining their own RRSP contribution room for other tax planning opportunities. Keep in mind that that funds being rolled to a retiring allowance are not tax deductible, but will continue to grow tax deferred until withdrawal.
Now is the time for you to take stock of your insurance needs and confirm when your life and health plans will expire. What is your family situation and current state of health? What type of coverage is currently available to you at work? Have you taken advantage of medical benefits available while they last? For example, now may be a good time to book that last dental checkup (for yourself and your family) to ensure problems are identified and addressed while there is still coverage in place. You may also want to investigate the costs of converting your existing health and life plans to individual plans, especially if there is no other coverage in place, and you are in poor health. Life insurance plans offered at work can be converted to an individual plan without a medical test as long as this is done within a certain period after your termination. An often-overlooked benefit, especially for clients who are the main breadwinner, is disability coverage. If the main breadwinner becomes disabled while they are out of work, it could be financially disastrous for the family.
Determine what will need to be done with your group retirement or pension plan. Carefully weigh your options. The options available range from: 1) leaving the retirement funds with their employer, 2) transferring the funds to a new employer, 3) transferring the funds to locked in retirement account managed by the client, or 4) transferring the funds to an annuity plan with an insurance company. You may be out of pocket if the projected return is not achieved by the investment you switched to versus what would have been accomplished in the guaranteed pension that was offered with the former employer. Ask your investment advisor to provide you conservative rate of return expectations for comparison purposes, to avoid problems later on.
Prepare financially for the transition by working with an advisor who can help you to map out your current financial circumstances in detail. For example, how much do you need to live each month? Do you have a budget? How much debt are you in? What is your credit score? Can you access low interest financing for current debts such as a consolidation loan or a home equity line of credit? How long could you live on your severance-based on current lifestyle needs? What expenses can be reduced at this time? What major purchases can be delayed? This an important time for you to understand your financial circumstances and devise a plan to take control of discretionary spending and interest costs as much as possible. This is also a time to look at strategies to boost your income.
An online CBC news article posted in June of 2016 predicted that 42 percent of jobs in the marketplace are at risk of being automated. Are you prepared for this potential “new normal” in the labour market? Are you ready to bullet proof your finances from any employment transition you may face in the future? The data suggests that we are in a period of rapid change. To fully prepare for any future job insecurity, you must be willing to take personal responsibility for your own career development like never before. Get involved in your industry’s professional associations, whether or not your employer pays for it. Commit to lifelong learning in your profession and to thinking like a consultant even when working in a full-time position. Maintaining a social media profile such as LinkedIn, is an important tool for you to promote yourself and make contacts for the next career move, even after securing employment. In this day and age, there is no way to predict when the next “tap on the shoulder” will come. The best way to bullet proof your finances is to embrace uncertainty by planning ahead and managing what you can control.