Market volatility, recession, subprime, inflation, economic uncertainty—it is impossible not to have heard some or all of these words during the news hour on our favorite station for most of 2008. Unfortunately, one of the results of these market conditions is company cutbacks, which ultimately can mean layoffs, severance packages or a company being forced to close its doors, which means you have no longer have a job.
One does not usually have the opportunity to plan for an unexpected severance, but one can definitely get some severance counselling. There is a good chance that you or someone you know may face a layoff in the future; this will impact your finances in a large way and it is important to let your advisor know as soon as possible.
An advisor can help you sort through a number of issues that become immediate upon losing your job. Here are the top items to consider upon job loss:
Life and health insurance benefits need to be addressed quickly.
If you happen to receive a small or large severance package, you may have serious tax consequences if not handled properly.
Retiring allowances can sometimes be transferred to your registered retirement savings plan (RRSP) without affecting your contribution room.
Losing a job ranks just below death of a loved one and a divorce in terms of a stressful event. It is important to realize the psychological toll this will cause and obtain advice and options to ensure you are able to make the best decision for your situation.
Make a monthly cash flow chart; you will have to decide in what order to use your avaiable funds (for example, savings accounts, RRSPs or line of credit).
If you have Company stock options, you usually have a short time to deal with them. Make sure you understand your options and the tax implications.
Making these decisions on your own, or with the help of a professional will help you to feel a sense of control. Set priorities; establish your most urgent financial obligations before spending your savings or dipping into your retirement fund.
Earlier I had mentioned that you usually don't have time to plan for a job loss, but there are a number of things that you can do while you are still working; if your industry has been affected by the credit crunch and tightening of the economy, you may be able to prepare in advance in case of the unknown.
Set up a line of credit, no cost to you if you don't use it and ususally offered at the low rate of prime (currently 4.75%). One more recommendation would be to make sure that your retirement plan is diversified; if most of the portfolio is in Company shares, you should consider diversifying.
Supporting and benefitting from your Company doing well is a smart move, but we never know what the future holds and we have certainly seen this scenario go bad in the past, such as the failure of Enron. As well, companies that are doing very well could add value to their employee relationships by having a professional do a presentation on retirement planning; adding value to your loyal employees is a win-win situation for both of you.