Did you know that most professionals drastically underestimate the length of time it will take to find a new job after a job loss? A financial professional can help you make sure you maximise your termination package and manage your finances to avoid financial loss and hardship during a job transition. You work hard for your money and you owe it to yourself and your family to explore all the advantages of sound financial management so you can keep as many personal, family and career options open. This is why we have asked the team of Marla Rosen and Bryan Milne from Investors Group, specialists in job and career transition financial management, to write this article. We hope you take their advice to heart because this is one aspect that most professionals tend to be over optimistic about. This video really brings the point home that we all tend to be a little over optimistic about the future and how we all need to plan our financial futures better.
Recently we were introduced through an outplacement company to woman who had recently lost her job. She had been working for a law firm for the last 18 years. She spent her time as an administrator and really believed that she would retire working for this company. Unfortunately, there was a downsizing and she was let go. She is one of many older workers who we meet constantly who have either been relieved of their jobs or are concerned that they will be let go. As financial planning advisors we never know which of our clients will be looking for another job. But what we do know is that we need to educate clients on what their options are before they are terminated so they can properly assess the best way to maximize their severance and pension packages.
Often, employees feel that they have to sign off on their packages quickly and feel they don’t have time to ask the important questions and consult a financial advisor. This is not the case. Please take your time before signing anything. Speak to a lawyer or a trusted financial advisor before signing off.
Let’s review what actually happened to the woman we mentioned above. She was offered a generous severance package which she took in cash. Withholding tax was immediately taken off the settlement and she was left with approximately 42% less dollars available to sustain a stream of income to live on until she found another job. If we had the opportunity to meet before she agreed to the severance we would have suggested she structure the payout differently. She had ample room in her RRSP to shelter the whole amount of severance. By having the company transfer the money directly into her RRSP she would have deferred all taxes until she actually needed to withdraw income. She would draw out money as needed and might also be able to arrange the withdrawals over two calendar years which would also help her lessen her tax liability.
Here are some advantages of pre-emptive planning:
- Invest money in an RRSP will grow over time.
- Control as to how much can be withdrawn over time.
- Money can be taken out over more than one tax year to lessen the overall tax paid.
- If a new job is secured quickly then the severance that hasn’t been spent remains in the RRSP to grow and help create a larger retirement fund.
If you or anyone that you know is faced with these decisions please direct them to a qualified financial planner for advice. Or you can call Marla or Bryan!
Marla Rosen is committed to providing service of distinction and offers years of relationship management experience to clients. She takes a holistic approach to creating, protecting and managing wealth and helps clients make well-informed decisions about their investments, tax strategies, retirement planning and estate planning.
Marla Rosen CLU, CPCA
416-491-7400 # 6530
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Bryan Milne believes that with a detailed personal plan, reviewed and updated regularly, you will have the financial resources to realize your goals and stay on track. I believe that building long-term relationships with clients is the best way to help you and your family to explore the financial options that are best for you at each stage of your life.
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Photo credit: David Kracht / Foter / CC BY-NC-SA