Financial Advice If You’re Made Redundant
Written by: Samantha Butcher | Advisory Team
Planning for your retirement is an exciting (and sometimes scary) time.
For those fortunate to be offered a redundancy during this time, it can make retirement planning a little less daunting as you are now going to have some additional cash to help fund your retirement income needs.
Being made redundant can elicit different emotions, depending on whether the redundancy was planned or not. For some, becoming redundant can be a stressful experience. You may be thinking “I am too young to retire, what will I live on?” or “What happens if I don’t find another job how will I pay my bills?”.
Seeking financial advice can provide reassurance, guidance and direction on what to do next.
What To Consider For Your Redundancy Payment
Regardless of whether you took a voluntary redundancy or whether it was forced upon you, there are things you will need to consider if you are offered a redundancy.
For example:
- Tax consequences of the payment: some redundancy payments are tax-free up to a certain limit based on years of service. Amounts above this limit will be taxed concessionally, and any balance above those caps are taxed at your marginal tax rate. You need to ensure you understand the tax implications of your payout. If your redundancy is a ‘genuine redundancy’ (where your employer has decided that there is no need for your job in their business going forward), the payment will be considered an employment termination payment (ETP).
- Ensure you check your leave entitlements: review your redundancy package details, including severance pay (compensation for early-ended employment contracts), unused leave, and any other benefits. You are entitled to be paid out any long service and/or annual leave owing. The Fair Work Ombudsman website has useful information on minimum entitlements if you need to check.
- Is your redundancy going to include any superannuation contributions?
- Is your employer offering other redundancy-related benefits such as financial planning or career transition support?
How Redundancy Can Affect Your Retirement Plan
What happens if I am a pre-retiree and I get offered a redundancy? Will it affect my retirement plan?
Becoming redundant can absolutely affect your retirement plan, in a positive way! It can either bring your retirement date forward, allowing you to retire earlier, or it can provide a greater income for those already ready to retire. Receiving a redundancy package where you are lucky enough to tie it in with your retirement provides you with an unexpected lump sum of capital that you were not previously counting on.
What do I do with my redundancy payout?
I would encourage you to assess your current expenses to ascertain your retirement income needs. This will help you calculate how long your money will last in retirement. You may consider contributing to superannuation, paying off debt, gifting some money to your children, or spending it on something that you initially thought you could not afford e.g. overseas holiday, new car, home renovations etc. Adding a redundancy payout will help boost the longevity of your capital.
Want to know more about the benefits of financial advice in retirement, not just if you’re receiving a redundancy? Check out this previous blog we put together: Financial Advice During Retirement: Why You Might Need It.
Redundancy When You’re Not Planning For Retirement
For those offered a redundancy who are not close to retirement age, ‘losing your job’ can be very stressful, especially if the redundancy was unexpected.
Regardless of what stage of life you are at, all individuals who have been made redundant should consider setting some money aside for a rainy day. I call this an ’emergency fund’. It is a sum of money that is set aside for any unexpected expenses. The amount of this emergency fund will vary between families as we all have different needs. For those who are not ready to retire, you will also need to set money aside to fund your living costs until you find alternative employment. This amount is difficult to predict because the length of time you will be between jobs is unknown (this is often the most stressful aspect for people who have been made redundant but are too young to retire).
For those who have a mortgage, or another form of debt, being made redundant will force you to prioritise essential debt, or debt with the highest interest rate. Contact lenders to negotiate temporary payment relief if needed.
If you are suddenly made redundant and cash flow is a concern, it is a good idea to visit Services Australia (Centrelink) to check your eligibility for income support and/or concession cards. Please note that you may be subject to an ‘income maintenance period’ where you will need to wait a period of time before the government deems you eligible to apply for Jobseeker or a low-income health card after receiving a lump sum payout. You may also like to take advantage of free resources available to the unemployed including career counselling and training opportunities to increase your chances of future employment.
Canny Advisory + Seeking Financial Advice When Made Redundant
Whether you will tie in retirement with your redundancy or whether you still have years of working life left, seeking professional advice from a financial adviser at Canny Group will provide many benefits.
Here at Canny Group, we have a team of financial advisers as well as a team of highly skilled accountants with experience in working with clients who have been made redundant. The accounting team will manage the tax consequences side of things whilst the financial advisers can help you navigate your next steps in relation to cashflow, future tax planning, debt management, Centrelink and/or potential retirement planning.
I encourage you to make an appointment and start the process of seeking formal advice. I use the word ‘process’ deliberately because we will meet with you at least twice (sometimes more often) over the course of approximately five weeks as we analyse your unique situation and prepare recommendations tailored to you and your family. These recommendations will factor in all the points raised above, including tax planning, estate planning, investment advice, superannuation contributions and debt management if relevant, and most importantly, cash flow.
This advice will provide you with peace of mind and set you on the right path to financial freedom.
Get in touch with our team today.
