Prepare a Family
soon as possible, complete a Family Budget and Net Worth statement. This
is important for selecting your severance options and for peace of mind.
It will also prove useful should you need assistance from your financial
institution during the transitional period.
Carefully review the company-offered severance package
most situations, the employer is offering the departing employee a
monetary settlement related to the most recent position and years spent
with the company. Though an emotionally stressful time, it is important
for the employee to carefully review the package.
Is the settlement fair? Does it reflect all aspects of your former compensation package, your position, contribution to the company, years of employment, reason for termination and likelihood of obtaining another job? If unsure, it is always advisable to seek the advice of a lawyer specializing in employment law.
Lump sum settlement or a monthly amount?
you have the option, is it better to take a lump-sum settlement or
salary continuation (i.e. monthly payments)? There are benefits to each.
A lump sum gives you immediate control over a large cash amount, and you
can work with a Representative to invest this sum more effectively according
to your financial situation. Another important
advantage is that you are free to obtain another job without risk
that your payments will be terminated.
you go this route late in the year, work with your employer to structure
payment timing that minimizes income taxes. On the down side, your
benefits typically terminate with this option.
salary continuation, if you obtain another job, you would typically only
receive one-half of the remaining payments. Some individuals however, will feel more comfortable with the
established routine of continuing to receive regular monthly payments
and benefits coverage for the duration of the payment period.
option you select, work with your company and Representative to minimize your
Putting the severance to use
the settlement is mutually agreed, what should you do with the money? Your
first priority is to shelter your settlement so you won’t have to pay
a huge chunk of tax on your payout.
roll as much as possible into an RRSP.
You can roll $2,000 to your RRSP for each calendar year (or part year)
of service up to and including 1995, if you were a member of a pension
plan. In addition, you can roll an additional $1,500 for each year of
service prior to 1989 if you were not a pension plan member.
payments not rolled to your RRSP will be fully taxable. They will be
subject to a withholding rate of 10%, 20% or 30%, so there will usually be
additional taxes when you file your tax return.
the RRSP contribution, keep enough to cover short-term living expenses
and expected income taxes. Then pay down the mortgage or other non-tax
deductible debts if your cash liquidity situation is positive.
assist your cash flow calculation efforts, go to the Family Budget
Calculator to set realistic spending targets that ensure you are living
within your modified means.
Dealing with a company pension fundIf you have a company pension fund, what should you do? Here are basic options:
Employment Insurance Benefits
for government employment insurance benefits immediately even though payments
won’t begin until your severance money runs out (assuming you are
unable to find other employment).
FAMILY BUDGET |
PERSONAL & AUTO LOANS |
INSURANCE | TAX PLANNING | ESTATE PLANNING | SEVERANCE | NET WORTH | CALCULATORS
|Understanding Financial Planning | Terms & Conditions | Privacy|
|© Copyright 2009 GO Figure All rights reserved|