What if I lose my job?

Scenario

Charles, a 58-year-old father with two grown children, has a defined benefit pension plan, but works in an industry that is sensitive to the economic downturn. His firm has recently begun cutting staff. Charles is worried he’s a potential candidate. What should he do?

David Ablett*, Director, Tax and Estate Planning says

An Investors Group Consultant would first look at Charles’ entire cash flow situation and investments to see how Charles might be able to cover expenses until he got a new job. Given that the job loss is a worry but not yet a reality means he has time to build up an emergency reserve and plan for the “just-in-case” scenario. Charles’ Consultant could provide him with a whole range of information and resources including the Investors Group Job Loss Checklist, a webcast and a Life Event Report on “Job Loss: Where to begin when your employment ends.” As well, the Consultant would identify and help him implement strategies to ensure that Charles is prepared and can protect himself and his family as best he can in the event this situation comes to pass.

Step one would be to review Charles’ expected cash flow needs and income sources to determine if and when cash shortages would occur in the event of job loss. The Consultant would identify sources of emergency funds, including the amount of emergency reserve that Charles has already saved. Charles might be well-advised to establish or top up his emergency reserve with a contribution of up to $5,000 into a Tax-Free Savings Account. Contributing to a Tax-Free Savings Account will allow Charles to generate tax free income. If a job loss occurs, Charles will be able to withdraw income and contributions on a tax free basis.

It might be prudent for Charles to boost his emergency cash reserves in advance of an expected job loss by establishing a low-rate line of credit. Charles would not use the line of credit, but set it up just in case (getting access to credit after a job loss is difficult).

If Charles loses his job, we would be able to assist with advice on minimizing the taxes on any severance payments he receives. Another key area will be advice on the options that Charles will have for his defined benefit pension plan when he loses his job, so that he can make informed decisions regarding his pension plan. Issues will include when to commence the pension, the type of pension to elect and whether to transfer a lump sum commuted benefit to a locked-in account.

Charles may be losing group life, disability and health insurance coverage as a result of his job loss. An Investors Group Consultant could help define his insurance needs and put required coverage in place.

And of course, Charles at age 58 may want to consider whether to retire now or look for a new job or career, or start a business. His Investors Group Consultant will use our planning software to prepare cash flow and other financial projections to assess whether he can afford to retire now.

David Ablett, B. Comm.(Hons.)
Director, Tax and Estate Planning

David is a retirement planning expert with many years of experience in the area of trust and pension administration. He assists Consultants in developing pension and retirement recommendations for clients, as well as providing advice on matters related to taxation and charitable giving.

This article, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.