10 May Life after redundancy: the 6 key areas
There seems to be a lot of this going around at the moment and it can definitely be a big shock after working so hard for so long. It will be a time of uncertainty across many fronts. If you do find yourself in the midst of a redundancy, getting your finances under control and ensuring you map out the important choices in your life helps reduce the stress on you and your family and helps avoid costly mistakes.
Life after redundancy – first step: don’t panic
First and most obvious is that you’ll need money until you find another job, if that is your intention. Many people use their termination pay to fund their costs for a while. Many people also find it useful to set up a regular income from a cash trust to pay the bills while they get reorganised.
You may be entitled to Centrelink benefits, although waiting periods and income and assets tests apply. We can help you navigate your entitlements, as we appreciate dealing with government departments can be a nightmare at an already stressful time
If you have enjoyed employee benefits like life and disability insurance, super contributions and employee share schemes, you’ll have decisions to make with these too. It’s very easy to make hasty decisions that you may later regret so this is the best time to seek advice on what your options are.
What you need to plan for
1. Everyday living expenses
It’s important to draw up a household budget. You’ll be surprised at how far your money will stretch when you take a disciplined approach to managing it.
You may qualify for government assistance. Your payout may count towards the Centrelink means test and it is a good idea to register early as there are waiting periods and their job seeking services can help you find another job.
You might like to use a portion of your redundancy payout to pay off debts and even some of your mortgage.
It’s a good idea to talk to your mortgage provider and find out how far ahead you are, what their policies are if you fall behind, and if they offer a redraw, as it’s important to consider the benefits of making a big deposit versus the need for cash. You may be able to put your repayments on hold for a few months, draw on some of your equity or redraw on advance payments.
A redundancy payout can create a complex tax situation, and you may need professional tax advice before you make any final decisions.
First, there is a legal and tax treatment difference between a genuine redundancy and if your employment is terminated. In the broadest terms, a genuine redundancy is when your employer does not replace you. In this case, some or all of your payout may be tax-free. Tax on your payout depends on how long you were with your employer.
Secondly, if you have shares in an employee share scheme, you will need to be aware of the implications, as in some cases you may need to pay to keep them.
Redundancy also creates opportunities and the financial issues can be quite complex. Speaking to a qualified financial adviser such as ourselves before making any significant decisions will help you get your finances in order and take one more concern off your plate.
4. Changes to your super and insurance
When you leave your employment your superannuation will likely go through some sort of transition too. There will no longer be contributions going in either. You will have to make decisions about whether any changes to super are of benefit to you and what is best for your super given your changed circumstances – fees, asset allocations and super provider are things to consider.
On average you have 90 days to make decisions in relation to your superannuation, although we suggest you take control and make decisions earlier.
Insurance is another big one to consider – ideally you don’t want to leave yourself exposed by not being insured. If your insurance is through superannuation it will be affected by the changes outlined above. If your insurance is outside of superannuation or set up to work with what you already have through superannuation you definitely need to seek advice on how to ensure a smooth policy transition where you are not uncovered at any stage.
Generally you will be given up to 30 days to voluntarily continue the insurances your employer previously provided, although in some cases the cover may stop as soon as you leave. It may be beneficial to continue these insurances if you can as they are provided without medical tests.
As a side note, if your income protection cover is held outside of super and through a reliable, proper life and disability company (ie: the policies you buy on the TV probably won’t cut the mustard here) then they usually have clauses that will allow you to claim as if you were at work for up to 12 months of unemployment.
If you’re over your preservation age (currently age 55) you can draw on your super through an account-based pension. In this way, you can use some of your super to carry you through, and you can still work again. It’s using a transition to retirement strategy.
If you’re over age 60 you can access the money tax-free, pending proposed budget changes, which you can find more information about here.
6. Your goals and plans for the future
Losing your job can transform your life. Perhaps you want to get back into work as soon as you can, perhaps you want to take some time off or perhaps you’re ready to retire. Whatever your goals and plans are it is an important time to work out what you need and want to do.
If you need some help with goal-setting check out our step-by-step guide that will help provide clarity and get you headed in the right direction.
Redundancy checklist – how to get back on track
- Get your finances in shape
- Do you know how to make the most of your final payout?
- Do you know how to estimate you expenses and budget during transition?
Have you checked your Centrelink entitlements?
- Do you know what will happen to your superannuation and the time limits that apply?
- Do you know what will happen to any life and disability cover you may have?
- Do you know how to maximise the value of your next job offer?
- Are you clear about your future goals and aspirations? Do you have a plan?
- Meet with a qualified financial advisor to discuss your options.
- Get your resume in shape
- Look into any outplacement programs you may have been offered.
- Get your health in shape – set yourself a regular exercise regime: join a gym, start swimming, walking – whatever type of exercise you enjoy.
- Catch up with all those family and friends you lost touch with.
Being made redundant creates a lot of uncertainty across all the key areas outlined above. If you need advice on what to do with your payout, what your superannuation and insurance options are, how to minimise your tax or how to ensure you can meet your everyday costs of living whilst you refocus or anything else please contact us, we are here to help.