In these challenging times, we understand that job loss can be an unexpected and emotionally taxing experience. As we observe the unemployment rate in Canada rise to 5.5%, more individuals are facing the fear of layoffs or have already encountered them. We recognize that the sudden disruption of daily life, coupled with financial uncertainties, can create overwhelming stress and anxiety.

The loss of a regular income can disrupt your ability to meet daily expenses, pay mortgages, and fulfill other financial commitments and emergency funds may quickly. This often necessitates a re-evaluation of financial priorities and budgeting strategies.

To provide guidance and support during this challenging time, we've outlined five essential financial steps to help you regain stability and secure your financial future:

1. Apply for Employment Insurance

• If you’ve lost your job through no fault of your own, apply for EI benefits to help cover a portion of your living expenses.

2. Understand your salary continuance options

• Your employer may offer you the option of receiving a salary continuance instead of a lump sum severance payment or retiring allowance. A salary continuance can provide you with cash flow to fund your ongoing expenses and is considered regular employment income. As such, salary continuance qualifies as earned income which may generate RRSP contribution room in the year following the year of payment. In some cases, company benefits such as drug, dental, life insurance and participation in a pension plan will continue while you're receiving salary continuance, whereas these benefits may not continue if you're receiving a lump sum cash payment.

 

3. Explore retiring allowance choices

• Retirement allowances is an amount the employer pays to an employee upon termination of employment. The amount of your retirement allowance is usually based on your length of service and position within the organization. It's common to hear the terms retiring allowance and severance package being used interchangeably but they are different. A retiring allowance is one component of a severance package which may also include other payments, benefits and incentives.
• A retirement allowance is taxable to you as income.
• Eligible retiring allowance
  • You may be to transfer the portion of your eligible allowance that qualifies as an ‘eligible’ retiring allowance to your RRSP without using unused RRSP contribution room. When it's transferred to your RSP, your employer is not required to withhold tax on the payment. Your employer does not need confirmation of your RRSP deduction limit when they transfer the eligible part of our trying allowance to your RSP.
• Non-eligible retiring allowance
  • If you want to defer the taxes payable on the non-eligible portion of your retiring allowance, you can contribute the amount to your own RRSP or to a spousal RSP, provided you have sufficient unused RRSP contribution room and the contribution is made within 60 days from the end of the year you received it. Your employer may require a copy of your Notice of Assessment for the previous year showing your RSP deduction limit to be sufficient.

4. Consider the impact of company benefits

• Some companies may continue to offer medical and dental benefits however they generally won't be as generous as they were when you were employed and they may also be available for a specified period of time. You may want to consider obtaining personal health insurance coverage to help protect your finances.
• Life insurance - upon leaving a group life insurance plan, you may be eligible to convert your group insurance to private coverage within a specified time frame provided by the insurer. It's also likely a good time to reassess how much life insurance coverage you require.

5. Evaluate pension plan options

• When you leave your employer, your pension plan administrator will send you a written summary outlining your company pension plan options. You'll be required to select one of the options by a specific deadline. Generally, if you don't act before the deadline, the pension plan administrator will assume you selected the default option, which may or may not be the best option for you.
• Option 1: Remain in the pension plan
  • You may be able to stay in the company's pension plan, but you will no longer accrue additional pensionable service. Remaining in the pension may entitle you to benefits such as continued access to group health, dental and insurance plans.
  • A defined benefit pension plan is often viewed as being less risky than a defined contribution plan since the employer is obligated to make up investment shortfalls in the plan by making contributions. If you're part of a defined benefit pension plan and choose to remain in the plan, you should be comfortable the company will be financially viable and able to make up any shortfalls in the pension plan to ensure you receive your expected retirement benefit. In a defined contribution pension plan, you assume the investment risk. If you choose to remain in the DC plan, you will be provided with a selection of investment options.
     
• Option 2: Purchase an annuity
  • You may be able to transfer the value of your pension to an insurance provider to buy an immediate or deferred annuity. The annuity will pay you an income stream beginning at the age set out in the annuity contract. The insurance provider assumes all of the investment risk once the annuity is purchased as your payments are guaranteed.
  • If you purchase an annuity, you will not have any control over the management of the funds and unable to change the terms of the contract. This means you can't switch to a different type of annuity or get your money back.
• Option 3: Transfer your pension value to a locked-in plan
  • You may be able to take the commuted value of the pension plan. This requires the pension plan administrator to calculate and transfer the commuted value of your pension to a locked-in plan.
  • A locked-in plan is similar to an RRSP or a RRIF. Some of the key features include:
    • Funds grow tax-sheltered, until you are required to begin making withdrawals in the year you turn age 72;
    • You can choose from a wide range of investments;
    • Withdraws may begin as early as age 55;
    • Each year, you may decide to receive more or less income, within minimum and maximum amounts, giving you greater control over your taxable income;
    • You may be able to unlock certain amounts of money held in a locked-in plan and transfer them to an RRSP or RRIF where withdrawals are not restricted;
• Option 4: Transfer your pension to a new employer 
  • If you join a new company and your new employer provides a pension plan, you may be able to transfer the vested amount of your pension into a new employer’s pension plan.

We hope that these financial steps will help you navigate this challenging period and regain your financial stability. Remember that you're not alone, and there are resources available to support you during this transition.

Whenever you’re ready, here’s 1 way we can help.

We help high-net worth investors and entrepreneurs to grow and protect their wealth.

Vito, Eric & Rachelle

 

 

 

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