The restructure of a business may lead to a reduction in staff numbers with certain positions being made redundant. Most people whose position is made redundant find it a very difficult time to deal with. A variety of emotions are typically experienced ranging from shock and anger to relief and hope.
Importantly, the change resulting from a redundancy can be the start of new possibilities such as a career change, the chance to reskill or retrain or the ability to take a well-deserved break or holiday.
The size of the redundancy payment can differ significantly on a range of factors. Regardless of the amount, it is important that you give careful consideration to how best to use the redundancy payments to provide for your short term needs as well as securing your future.
It is important to understand the payments you are receiving, the tax implications and the choices available to you. Payments received as part of a genuine redundancy program can be concessionally taxed to help your money last longer.
The steps you should consider for dealing with your redundancy are listed below:
Step One: Identify payments to be received
Step Two: If paid under an approved early retirement or redundancy, calculate tax free amount
Step Three: Estimate tax payable on taxable amounts
Step Four: Determine what to do with the received amount after tax proceeds
The impact on Centrelink
Before making plans for how to spend the money, you should also consider the future and your prospects for returning to work. The payments received may create a ‘waiting period’ during which you will not qualify for any income support from Centrelink. This can be a substantial period of time so you need to ensure you have access to money to meet your living expenses during this time.
The upside of redundancy
If you plan ahead and use the redundancy payments wisely you can take some of the stress out of redundancy. Some options available to you include:
- Repaying debt: Use your net redundancy payment to reduce the burden of outstanding debt. This can include paying down your mortgage, personal loans and credit card debt.
- Commence a savings strategy: You can use part of your net redundancy payments to commence a savings plan to meet your medium to long term objectives.
- Invest for the longer term: This can be an opportunity to invest in an asset that has the potential to provide you with a combination of capital growth and income over the long term. This may include purchasing a property or a portfolio of diversified growth assets or adding to superannuation.
Redundancy can be a challenging time but don’t lose sight of the significant upside that it can also provide with careful planning and advice.
If you, or someone you know, is made redundant – it is a great time to seek financial planning advice, to maximise your benefit and establish a roadmap for the future.
At The Wealth Farmer we care and are happy to help you.
We just help by having a conversation. We welcome everyone to come in have a cup of coffee or tea and have a chat. A chat is free. It costs nothing.