Continuing our Life Events series, today we delve into some planning thoughts when you leave a job.
Although we would all like to think that we can choose when to change our job or when we retire, the reality is that sometimes the choice is made by our employers. When you lose your job, there are many important decisions that have to be made in a short time.
Severance/Retiring Allowance
There are minimum severances and retiring allowances that employers must pay, set by the provincial government. These are based on your years of service. However, there are conditions where additional compensation should be negotiated based on your age, level of expertise, and the potential difficulty in securing the same level of employment that you had. Before signing any documents your employer may serve you with, it is advised to take some time to think your options through;, and if in doubt to speak to a lawyer who specializes in employment law.
Severances and retiring allowances are fully taxable income. Most employers give you the option of taking a lump sum or receiving a set number of weeks of salary continuance. There is no set answer for everyone on which is the best decision for you. You should always consult your financial advisor before making this decision.
If you opt to take the lump sum and have RRSP contribution room, it may be best to roll the severance to your RRSP. You can then withdraw what you need until you secure new employment. If you do find a new job quickly, you will have boosted up your retirement fund, and saved tax that you would have paid on the severance as income.
Group Insurance
We often give little thought to the value of the insurance coverage we receive through our employers. This usually includes life insurance, disability insurance and health benefits. Most benefits, including health benefits end with the severance of employment. We advise that clients secure their own life insurance coverage so that it is not invalidated by job loss. We never know when our health status may change and make us ineligible to get approved for life or disability insurance. If you have some time before your final day of coverage, try to get in for those dental appointments and stock up on any prescriptions you need.
Stock Options
If you were a member of your company’s stock option plan you will need to make some decisions about your options when you leave. Generally, under the terms of the plan you will be required to exercise your options within a specified time of your departure, perhaps 60 days. It is important to understand how this can be done to avoid adverse tax implications. See you financial advisor.