In today’s business world it is not uncommon for people to work for several companies throughout their career. Often, job changes occurs when a better opportunity arises, creating excitement and new avenues for growth. Unfortunately, for some, a layoff is an unwanted change, typically with some initial uncertainty.
If someone leaves voluntarily, there usually isn’t a severance to manage. However, there may still be a lag of income, so planning is still essential to ensure a smooth transition. Here are some key considerations:
- Update your contact information for friends and family if you have been using a work-based email or a company issued cell phone. Also, note any personal contacts saved in company systems so you don’t lose them
- If you had a pension plan (defined benefit or defined contribution), contact the provider to request your options package. This may take some time as they usually wait for official notification of the end of employment
- Review your options for either a pension or group RSP as often it makes sense to consolidate your accounts to prevent them from being overlooked in the future. If it is a defined benefit or contribution plan, commuting to a LIRA can make sense in some situations. In other case, especially if you are nearing retirement, it may be better to leave the pension as is, allowing you to start drawing on it in retirement. Each case is unique, talk to an advisor to compare options for you to make a more informed decision
- Check your group health benefits. Contact the old benefits provider immediately as some plans allow for the conversion to a personal benefit plan within a period of time (typically 30 days) after leaving
A termination or layoff differs significantly, with more factors to consider. First and foremost, educate yourself on your rights through resources like the Government of Canada’s Termination, layoff or dismissal – Canada.ca page.
- Understand your severance options. Severance usually comes in one of two forms:
- A lump sum payment…this is taxable income so consider tax saving strategies, such as taking some immediately and if possible, defer some to the next tax year as that may result is a lower tax hit on this income
- Salary continuation…this is a continuation of your income for a period of time with regular deductions such as CPP, EI and taxes still withheld. If you are a member of a Group RSP or pension plan, contributions may continue during this period
- Apply for Employment Insurance (EI) benefits as soon as possible. Ensure you ask for your record of employment (ROE) from the employer as it may be required for the EI application. Here is a link to the Canada.ca site on EI benefits Employment Insurance benefits and leave – Canada.ca
- Explore your options for your group health benefits. Many plans allow for a conversion of those benefits to a personal plan with a short period time, without needing to qualify medically. Individual plans are also available from various companies, although they may require medically underwriting.
- Review your family budget to prepare for a potential period of unemployment. Are there regular savings, for RESPs, RRSPs or TFSAs that should be adjusted? Expenses that can be trimmed in the interim?
- If you had a Group RSP or pension plan, similar to point 3 in the first section, consult an advisor to review your options and make the best informed decision
Additional suggestions:
- Consider setting up an emergency fund, especially if you receive a sizable severance amount, as this can ease future transitions and alleviate stress in the short term
- Update or create a LinkedIn profile if you haven’t already. Networking and a professional online presence can be helpful for future career opporunities
If your next step is retirement, our previous blogs on CPP and OAS could be helpful:
CPP and OAS basics – Envision Private Wealth
CPP breakeven age, what does it mean? – Envision Private Wealth
If you have any questions, you can reach us at aurora@harbourfrontwealth.com or 416-737-1133.
Happy planning!
Reinaldo
