“When one door closes, another opens but we often look so long and so regretfully upon the closed door that we do not see the one which has opened for us.” ~ Alexander Graham Bell.
Here’s a situation where these
words of wisdom carry tremendous value.
You’ve been given the fatal news that your job is terminated. Waves of emotions begin to take control when the
news makes contact with your brain. Your mind churns the facts, asking the most
logical question, “Now what?”
The questions following the
shocking news are first centered around money issues. But eventually, the money issues make way for
others. You may feel a sense of grief, anger, or even euphoria. Every person
will experience a range of different emotions on any given day.
Darryl Robinson, a Certified
Financial Planner, delivered a presentation on Severance Planning: The Good, The
Bad, and The Ugly at the Canadian Institute of Financial Planners 14th
Annual National Conference. Darryl, who once worked as a registered
social worker, now specializes in offering financial, severance and retirement
planning services. He willingly shared
his expertise on this important topic.
One enormous take-away from
Darryl’s presentation was that when people are seeking help with the usual
requests, “What should I do with my severance package and pension?” or “Help me pay less or no tax”, their
underlying need is to know “Am I going to
be okay?” Darryl’s advice to the
group was before you discussed any money issues, the first conversation should
center on the client’s well-being. Reach
out and ask, “That’s rough. How are you dealing with this?”
Sharing your emotions is as
important as dealing with the money issues.
You may be coping with a drastic change in your life as well as your
lifestyle. Airing your feelings and concerns openly with a professional can
help you deal with your frustrations.
Available Resources and
Provisions
Retiring Allowance Provision
If you receive a retirement
allowance, you may find some temporary tax refuge with the Retiring Allowance.
Canada Revenue Agency described a retiring allowance (also called a severance
pay) as an amount paid to officers or employees when or after they retire from
an office or employment, in recognition of long service or for the loss of
office or employment. This link to the Canada Revenue
Agency’s site discloses which specific payments qualify as a retiring
allowance.
The lump sum payment (or allowance)
is a taxable benefit and will be added to your annual taxable income. Depending on your current year-to-date
employment income, this added bonus may push your taxable income into a higher
tax bracket unless you are able to take advantage of the Retiring Allowance.
The
maximum limits determine the eligible amount based on the timing and duration
of your years of service with the same employer. Consideration should be given
to even temporary summer employment to increase the total years.
·
$2,000
for each year or partial year of service before 1996
PLUS
·
An
additional $1,500 for each year or partial year of service prior to 1989 in
which you didn’t earn any vested pension or DPSP (Deferred Profit Sharing
Plan) benefits
The most significant aspect of
the Retiring Allowance is its ability to rollover your taxable
allowance directly to an RRSP (Registered Retirement Savings Plan) without
any immediate tax consequences, giving the flexibility and control to withdraw
the funds when needed. This extra “room”, per se, is in addition to your
existing RRSP contribution room shown on your Notice of Assessment. Utilizing both, the Retiring Allowance
and RRSP contribution room, will maximize your tax savings if your annual
taxable income is exceedingly high.
This advantageous provision is
often overlooked and doesn’t receive the necessary attention. Because the
Retiring Allowance is available for years of services prior to 1996,
some advisors and Human Resources employees are unaware of it. Many
dedicated and loyal Baby Boomers today, who have been committed to one employer,
certainly may benefit from this if they are offered a payment.
A sample calculation is provided Jim
Yeh, a blogger for Retire Happy, in his blog post, Dealing with Your Severance Allowance.
FCAC’s
Checklist: Things
to do if you lose your job
A valuable checklist is available
from the Financial Consumer Agency of Canada (FCAC). By clicking here you
will see a number of actions if you lose your job. The list is fairly detailed
and may appear overwhelming. One important item on the list may help
alleviate feelings of being overwhelmed: “Consult an independent financial
professional, such as a financial advisor or financial planner, to find out
how to best handle your severance package, if you receive one.”
Employment Insurance
Another consideration is to apply
for Employment Insurance. Most would not consider this option if their
positions have been terminated and they received a severance package.
Employment Insurance is available to those who lose their job through no fault
of their own. Applying for benefits
while you transition to the next phrase of employment will provide the
necessary financial help. Specific
details on How to Apply for Employment
Insurance benefits are available here.
What’s
Next
The better question may not only
be “Now what?” but “What’s next?”
When you received the news, you may have been on the verge of
retirement. You are not greatly
affected. But if you weren’t ready for retirement, you have been presented with
a new employment opportunity. I believe the important part is to hunt for the opened
door. I know first-hand the feelings of
being delivered the fatal blow that your job is being terminated. Grief certainly is part of the transition
process to the “What’s Next”
stage. Recognize your feelings and
acknowledge that they will pass when you develop new passions and desires. Success will come to those who look for it. Please share any challenges and experiences
you encountered which may benefit others.
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