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How you spend your time and money after redundancy can make a difference to your future career and wellbeing. Find out how to plan for your best outcome.
When your time at work comes to an end because of redundancy, it can stir up all sorts of feelings, ideas and possibilities. For some it’s a great opportunity to rethink how you want to be spending your time. Fear of the unknown can be a natural response too when redundancy leaves you without a steady income to rely on. But whether you’re looking at the glass as half-full or half-empty, there are some important steps you can take to get ready for this next phase in your life.
Get your redundancy payment right
Your final payment is likely to include a few different components. In addition to your redundancy entitlement under a contract or award with your employer, you may receive further payments in lieu of annual leave, long service leave or any notice period you haven’t worked. There may also be a salary payment rolled into this final sum.
These amounts are all subject to different rates of tax:
Genuine redundancy payments can include payments in lieu of notice, your redundancy payout based on years of service plus any additional incentive you’re being offered as part of your redundancy These payments are tax free up to a limit based on your years of service.
Employer termination payments (ETPs) up to a certain threshold are taxed at concessional rates, depending on whether you’ve reached your preservation age and can start drawing on your super. Your ETP can include payments in lieu of notice, an incentive payment or “golden handshake” and payments for unused rostered days off.
Salary payments, and payments in lieu of annual or long service leave are treated separately from ETPs but may also be taxed concessionally depending on your marginal tax rate and circumstances.
The type of payments you’ll receive and how they’re taxed can be quite complex. If you’ve been with your employer for a long time and are expecting a substantial pay out it’s worth speaking to an accountant and your employer to ensure your payout is structured to help you get the maximum benefit from any tax exemptions and concessions available. Check the ATO website for more information.
Super and insurance
Stopping work doesn’t just mean you’ll be without an income. You’ll also be missing out on guaranteed super contributions from your employer. It’s worth remembering that a gap in your super payments, however brief, can have quite an impact on future income you’ll be earning from compounding returns on your entire super balance. Some of your personal insurance policies – such as life insurance, total and permanent disablement and income protection – may also be arranged with your super fund. To make sure you continue to benefit from your insurance cover, talk to your super fund about what you can do to continue paying premiums on your policies.
Make a budget
When you get your redundancy payment, it can seem like a big windfall and a chance to splash out on something you couldn’t normally afford, like a new car or dream holiday. But make sure you keep reality and your future in mind before you start spending big. Keeping up with super contributions and insurance premiums may not seem like the most essential or exciting items to include in a post-redundancy budget, but they are important for your longer term financial security. If you’re heading into redundancy without any emergency savings, think about putting some of your payment aside so you’ll have a few months’ salary to fall back on in the future.
Taking time to figure out a comprehensive budget and spending targets – including immediate needs like groceries, bills and keeping up with rent, mortgage or other loan payments – can help you figure out just how long you can afford to be off work. This can give you time to come up with a strategy for getting back to work without worrying about running out of money in the meantime.
Making plans for a better future
With some careful planning and advice on your finances, you have a much better chance of taking the time you need to feel positive about looking for a new job. Even when you’re feeling ready to return to work, it can be difficult to muster the confidence to work on your resume and perform well during interviews. It helps to look back on your career history in an objective way, taking note of what you achieved and learnt in previous roles. It’s a great way to remind yourself about all the experience and knowledge you have to offer so you have plenty to talk about with recruiters and potential employers.
If you find yourself snapped up by a new employer and have a sum of money left over, give some thought to starting an investment portfolio. With the right approach, your finances can benefit from future earnings from your investments as well as a steady income from your career.
Whatever your plans may be following redundancy, a CERTIFIED FINANCIAL PLANNER® professional can offer valuable advice on budgeting and making the most of your pay out.
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