How to cope financially if you’re facing retrenchment
Faced with the possibility of losing your job, it is easy for panic to set in as you consider your mounting monthly expenses and dwindling bank balance.
Debts such as medical aid, car and house payments and school fees do not stop, but there are ways to manage your financial affairs to navigate through this time. It is important to realise that retrenchment is not always a negative. Sometimes a voluntary retrenchment, accompanied by a package, can be a positive for someone, especially those who have been with a company for many years and stuck in a job or salary rut. So don’t let your emotions cloud the decisions you need to make. This might be a great opportunity to work for someone else in the same industry for a higher salary or to start a new career following your passion.
Do not panic. Retrenchment is an emotional journey, so speak to people and get advice. It doesn’t have to be a scary journey. You need to take responsibility for your own situation, but you can get holistic help from a financial adviser. These professionals are not only around for the times when you have money to invest, but also to guide you through times when money is tight.
A financial adviser will look at your individual situation and advise you on which debts to pay off first. Your retrenchment package will be taxed in same fashion as any money taken at retirement – the first R500 000 of your package is tax free, the next R200 000 is taxed at 18%, the next R350 000 is taxed at 27% and anything over R1 050 000 is taxed at 36%. This benefit is a cumulative scale only available once in your life, either when you are retrenched or at retirement. Whatever cash you have to take from your package will use up the tax scale and it will therefore not be available again at retirement.
The first thing to do is to draw up a budget. If you don’t have one, you won’t know how long your package will last and what the most important things are that you have to pay.
Do not cancel your medical aid or insurance in case of unforeseen incidents. Your employer was probably paying so don’t forget to instruct your medical aid to change the payment details to your own so that nothing falls through the cracks, leaving you without cover.
Look at your package – hopefully you can use this as cash flow and find a job before you need to start using your retirement savings. Examine your circumstances - will there be a penalty if you have a payment holiday on any of your accounts or do you have retrenchment cover on any accounts? Go to your bank and discuss if you can reduce your home loan repayments. What is the minimum you can pay, or perhaps you could even stop paying completely as you have saved extra in the bond up to that stage? It is important to consider these options as it has a direct impact on your budget”.
Be aware that you don’t have to accept your company’s first offer. The minimum package is one week’s salary per year you’ve been there. If you are on a Defined Benefit pension fund, negotiate to waive possible early retirement penalties as part of your package. There is no guarantee this will be granted, but it is worth asking. Is there anything you would be due at retirement that you could ask for now, if you are close to retirement? Also, if you get retrenched halfway through the year and you were due a bonus, check that you get the half that is due to you.
An adviser can also guide you as you consider your future career options as they can look at the financial pros and cons. Oftentimes people have thrown their retirement fund money away setting up a business in a field they have no experience in. You need to be careful of getting yourself into an even worse financial position – a business loan may be a better option than using your retirement savings.
Start saving again once you have a job to make up any losses that happened due to the retrenchment. Look at your cash flow and budget and don’t take food out of your mouth to try and keep putting money away while you don’t have an income. Speak to your financial adviser to help with this part of your financial journey so that you can make the best decisions for yourself and your family.