A job loss among the most stressful financial experiences.
Facing a job loss is not just a financial challenge; it’s often an emotional rollercoaster. However, there are proactive steps you can take to lessen the severe impact of job loss, allowing you to prepare your finances and realign your goals—whether in your career or for retirement—to emerge from this experience even more resilient and stronger than before.
Keep reading for our guide to help you navigate the challenges of job loss and find new opportunities.
Start Your EI Application ASAP
If you qualify for federal Employment Insurance (EI), start the application process as soon as possible. This ensures you get benefits sooner than later. You’ll need certain documents to complete your application, most notably a record of employment from your employer—though you do not need it to start the application process. Keep in mind benefits are taxable. Combined with work income and a possible severance package, your tax picture for the year may be more complicated than past years.
Reach Out to a Professional for Advice
Among your first contacts beyond EI should be with a financial advisor. They can help you navigate some of the tax challenges related to EI and severance. As well, your advisor can help you with a temporary financial plan to get you through the next few months or longer while looking for work. If you’re closer to retirement, they can also provide insight about current savings, investments, and government (i.e., Canada Pension Plan) and workplace pensions. This can help determine if you can retire early, or work on a contract or part-time basis instead of full-time.
Make Budgeting a Priority
If you haven’t established a budget yet, it’s highly advisable to do so at this juncture. Financial advisors are readily available to assist, or you can opt for a DIY approach using a spreadsheet or leverage numerous free online tools, such as the one provided by the Ontario Securities Commission at GetSmarterAboutMoney.ca. The initial phase involves cataloging your potential sources of income, encompassing elements like severance packages, EI payments, and other assets, such as savings accounts or, if necessary, drawing from your investment portfolio, which may even entail withdrawals from RRSP and TFSA accounts.
Lean on Your “Pros”
Your advisor can go over your portfolio and other sources of savings, and offer insight about where you could withdraw capital tax-efficiently. It’s best not to make these decisions without professional advice because the wrong ones can be costly. For example, drawing on registered accounts, like the RRSP or a LIRA could result in taxes owing. If you’re receiving severance, your advisor can provide suggestions regarding how to stretch this income stream to cover costs. In some cases, it may be necessary to negotiate with your employer should severance fall short of what you believe is fair. Here, an advisor can provide guidance on the settlement’s impact on your financial well being. Many advisors also have contacts for lawyers specializing in this area to help with negotiations.
Review Your Expenses
Once you’ve examined incoming cash flows, now comes the more critical element: reviewing expenses. Break them down into costs that must be paid—like the mortgage, utilities, car payments and groceries—and discretionary outlays like entertainment, which will involve a conscious effort on your part to cut back. Afterward, it’s important to keep a tab on your spending on a monthly if not weekly basis. The ability to reduce costs, matching them to your reduced income, will ease your financial anxiety. It’s also good to bring the family together to discuss the budget so they understand the situation and have input regarding what household expenses should be scaled back. Your advisor can also offer input on cost-cutting strategies. That can include advice on restructuring the mortgage, line of credit and auto loans. If you’re facing more severe circumstances, you might even consider selling a vehicle or your home. But only with a clear plan and detailed budget can you be certain what strategy will help you remain solvent through this trying period.
Make Pension Decisions
Other considerations regarding your finances are the pension plan and/or group RRSP with your employer. Often you have the choice of remaining vested with the employer plan or you can have those retirement assets transferred to your own RRSP. Other plans set the money aside in a locked-in retirement account (LIRA). Your advisor can help you understand the different choices, their pros and cons, and even model different scenarios. For example, individuals with defined benefit pension plans may or may not want to remain with the plan, which provides a set payment for life upon retiring based on wages earned and years of service. But they also may have the option of taking its commuted value to invest on their own. This can have advantages for some individuals, like those with a shortened life expectancy, or they may have a spouse with a defined benefit pension plan already, providing a steady foundation to a household’s retirement income. In turn, the individual could take the commuted value and structure the investments more tax-efficiently for retirement and other long-term goals.
Take Care of Your Physical and Emotional Wellbeing
Overall, a job loss can lead to significant shifts in your financial plan. In some cases, the changes may be temporary. Loss of employment income may only last a few days, weeks or months. It’s important that your financial advisor readjusts and updates your plan according to short- and long-term goals to help navigate this difficult period. But there’s more to consider than the finances. You also need to tend to yours and your family’s emotional and physical well being. Take time to relax, and gather yourself before charting your next move, or even updating your resume and LinkedIn profile. You also might want to consider education opportunities, including micro-credentials to enhance your resume. Of course, a financial advisor can help you understand how these costs will fit with your budget.
Take a Deep Breath
There’s much to consider when it comes to navigating the challenges of job loss, and it’s understandable to feel anxious and overwhelmed. That said, it’s important not to rush into decisions driven by emotions of the moment.
Seek trusted advice. Do your homework too. Take a breath, and take heart that this journey—while difficult—can be an opportunity for positive change leading to a better place for your and your family.
A more detailed, step-by-step guide from Moraine Wealth Advisory can be downloaded here:
