Being made redundant can seem like the end of the world, but I like to think that ending your job with a payout could be the beginning of something wonderful.
Before that happens though, you need to be redundancy-proof.
There’s a lot to think about when facing redundancy, but here are some key considerations to get you started.
What do you do with a lump sum?
It will be tempting to go and spend money – a new kitchen, car, holidays, pay out debts...The list is unique to each of us.
While exciting, how you choose to handle this money may dictate your future security, and getting good financial advice is crucial.
A financial planner can look at the bigger picture, and they’ll also ensure you’re making the most tax-efficient decisions.
It would be a shame to lose money to tax that, with some good advice, could have otherwise been yours.
Can you go straight into another job?
Some may need a breather and, if that’s you, take advantage of this opportunity for a little while.
For some, I often recommend taking any job, part-time or a short-term contract. It generates some cash flow and keeps you occupied. The more idle time you have on your hands the more you’ll be tempted to spend money.
Being busy boosts your sense of self-worth. It also shows employers you are ready and willing to work. Getting work can be tough though, especially if you are in the twilight years of your career and I’m seeing it take much longer to get “that” job than often is anticipated.
About 80% of workers find a job within two years. For those in niche roles, cyclical industries, older workers and casual workers of all ages are the ones who struggle after a redundancy.
For example, becoming redundant at 50 creates a lot of obstacles. You are too young for the age pension and there is limited access to superannuation.
Access to Centrelink will depend on your payout and assets, and it’s not much compared to your previous salary, so you risk losing what you’ve built up in anticipation of retirement.
Check on your superannuation and insurances.
After a redundancy your superannuation situation may change, these changes may be automatic.
Some superannuation funds with defined benefit amounts automatically roll over to an accumulation account. Find out how you are invested now and whether that’s right for you.
It’s a good idea to also check what fees you’re paying, as sometimes discounts on fees decrease once redundant.
Depending on your age, you may be able to access your superannuation, but should you? Also check your personal insurances. Benefits that were with the superannuation fund or company may be made void, sometimes immediately.
Plan your spending and protect your wealth
How long your payout will last?
Analyse your spending habits, savings and tax obligations.
Don’t forget any negatively-gearing obligations. You may still have debts to service, plus all those regular bills to pay and insurances. Live within your means and know how long you can live without another income.
When planning, keep in mind how you are going to prevent yourself from spending money now you have more time. Also consider liquidity, what investments can you access if needed? It’s important this plan considers protecting the assets you’ve built so far.
Redundancy can be traumatic, or it can be a great way to start a new chapter in your life – your own business, a career change, a payout to clear debt, pay for a big holiday, boost your wealth. It can mean a financial top up to your situation to help you get ahead - particularly if you can get another job shortly after redundancy.
Note this is general advice only and you should seek advice specific to your circumstances.
Helen Baker is a licenced Australian financial adviser and author of two books: One Your Own Two Feet – Steady Steps to Women’s Financial Independence and On Your Own Two Feet Divorce – Your Survive and Thrive Financial Guide. Proceeds from the books’ sales are donated to charities supporting disadvantaged women. Helen is among the 1% of financial planners who holds a master’s degree in the field. Find out more at www.onyourowntwofeet.com.au
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