Lost your job ? Dont know where to turn ? We are here to help !
•Download as PPT, PDF•
1 like•434 views
You may be faced with a number of challenges that go along with a career transition. You need advice on severance payments, monthly cash management, Tax issues with lump sum payments, transfer of Employer investment, retirement or health befit plans. We have a complete team of industry experts that work together to deliver a comprehensive written financial plan that deals with the facts of this event and help you adjust to the new future.
Recommended
More Related Content
What's hot
What's hot (20)
Viewers also liked
Viewers also liked (12)
Similar to Lost your job ? Dont know where to turn ? We are here to help !
Similar to Lost your job ? Dont know where to turn ? We are here to help ! (20)
Recently uploaded
Recently uploaded (20)
Lost your job ? Dont know where to turn ? We are here to help !
- 1. Lost your job? Wondering who to turn to for help? WHERE TO BEGIN WHEN YOUR EMPLOYMENT ENDS? Marla Rosen, Consultant CLU Bryan Milne, Consultant Investors Group Financial Services Inc.
- 2. This presentation… The strategies represented may involve loans for the purpose of investing and are based on the assumption that the interest costs are tax deductible for Federal income tax purposes. Borrowing to invest is a long-term investment strategy and may be more suitable for higher income individuals and may not be appropriate in all circumstances and is not for everyone. Gains from positive fluctuations in the value of investments will be magnified, but losses from negative fluctuations in the value of investments will also be magnified. Is specifically written and published by Investors Group and intended as a general source of information only, and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax, legal or investment advice. Clients should discuss their situation with their Investors Group Consultant for advice based on their specific circumstances. Although we have tried to ensure the accuracy of this information, tax laws change frequently so the provisions and exemptions mentioned in this presentation may change. Insurance products and services distributed through I.G. Insurance Services Inc. Insurance license sponsored by The Great-West Life Assurance Company. 2
- 3. Agenda Being Prepared Important decisions that need to be addressed New opportunities, your future Financial planning considerations & strategies 3
- 4. When financial advise is needed 4
- 5. Be Prepared Household Budgeting System Why budget Revising your family budget due to your changed circumstances. Preparing a longer-term budget for the next 6 to 12 months due to job loss. Identify and defer those expenses that can wait until you find new employment. 5
- 6. Be Prepared Debt Management Debt repayment: Eliminate high-interest, non-deductible debt such as credit cards. Debt consolidation: Consider consolidating your debts under a single “umbrella” loan. Debt restructuring: Investigate whether you can re- structure your loans to make all or a portion of the interest tax deductible. 6
- 7. Being Prepared Emergency Fund It’s important to have sufficient funds to handle essential expenses during a three to nine month period. Choose a short-term investment that provides instant access to your money. Consider the new Tax-Free Savings Account (TFSA) as an emergency fund Consider a line of credit using the equity in your mortgage. 7
- 8. Important Decisions Severance Pension Benefits Other Employment Benefits 8
- 9. Severance 9
- 10. Severance Some provinces have legislated minimum severance amounts. A severance payment is taxable income in the year you receive it. Severance can be paid as a lump sum or as a series of payments. Severance payments, even if transferred to your RSP, may either delay commencement, reduce or eliminate EI benefits. 10
- 11. Tip #1 A portion of your severance payment (also called a retiring allowance) may be eligible to be transferred to your RSP on a tax-deferred basis. If you have the available RSP contribution room, you can roll the whole severance into your RSP. Then you can draw out income as you need it and be taxed at a lower rate. If you don’t need to use all of the money you will have a nest egg for your retirement. 11
- 12. Severance The maximum amount of eligable retiring allowance that can be transferred to your RSP (the “rollover” amount) is the total of: $2,000 for each year of service (including part years) with the Employer prior to 1996; and $1,500 for each year of service prior to 1989 in which you did not earn a benefit from a pension plan or deferred profit sharing plan. 12
- 13. Employee Benefits Issues to be addressed: Have you earned a “vested” pension benefit? If so, should you transfer the value of your benefit to a personal locked-in retirement plan? Are you eligible for a Pension Adjustment Reversal (PAR)? Group life/disability & medical insurance - do you still qualify for these benefits? And if not, can you covert to individual coverage without medical evidence? 13
- 14. Tip #2 Call your group benefits specialist to find out if you can transfer your existing life insurance into a personal life insurance policy, until you have time to do a complete insurance review with your financial planner. There is usually only a 30 day window to convert your group life insurance to a personal insurance contract. 14
- 15. New Opportunities New Job Early Retirement Starting your own business 15
- 16. New Job If you find a new job quickly, you may be able to save a large portion of your severance. If your new employer has a defined benefit pension plan, it may be advantageous to consider transfer your pension benefits to your new employer’s pension plan if the plans are similar. Defined contribution pension plans and group RSPS need review Review the new employer’s group life/disability/health care program to see if supplementary coverage is required. 16
- 17. Starting Your Own Business Issues to consider: Financing: You may need a substantial portion of your severance to finance the start-up of your business. Working hours: Entrepreneurs normally have to work long hours until the business becomes established. Risk: Many start-up businesses fail, mainly due to inadequate capitalization and lack of managerial skills. Bottom Line: Are you comfortable with the entrepreneurial lifestyle? 17
- 18. Tip #3 If you suspect that you might be losing your job and you believe that will become self-employed person you need to explore getting a personal disability contact in place while you still are receiving employment income. Once you become self employed, insurance companies require proof of 2-3 years of earned income to put a DI policy in place. 18
- 19. Taking Early Retirement Issues to address: Retirement income sources and expenses When should I start receiving CPP/QPP? When will OAS benefits start? Should I make major purchases now? Inflation? Retirement Income? Other employment? 19
- 20. Tax-Saving Strategies Transferring your severance into your RSP? Contributing to an RSP and/or a TFSA? Splitting income with your spouse? Deducting moving expenses? Deducting legal expenses? 20
- 21. Keeping the Right Perspective Other issues to consider: Estate Planning Insurance needs Investment Planning 21
- 22. Support Family and friends Career Counseling Financial advisor 22
- 23. 23 Thank you “Lost your job? Wondering who to turn to for help?” – C3148 – 03/2009
Editor's Notes
- (Note to Consultant: Please insert your name, title from your business card and the name of the dealer on the slide. The dealer name under which you present yourself will differ, dependent upon whether you are licensed with Investors Group Financial Services Inc. (Mutual Fund Dealers Association - MFDA) or Investors Group Securities Inc. (Investment Dealers Association - IDA). If you are licensed through the MFDA, you must use this dealer name on the slide: Investors Group Financial Services Inc. (use in Canada outside Québec) Investors Group Financial Services Inc., Financial Services Firm (use inside Québec) If you are licensed through the IIROC, you must use this dealer name on the slide: Investors Group Securities Inc. (use in Canada outside Québec) Investors Group Securities Inc., Firm in Financial Planning (use inside Québec)
- Today’s presentation will discuss the issues surrounding job loss. For some of you, job loss may have already occurred - for others, this topic may be of interest because of concerns you may have regarding your own employment situation. My intention is to provide information on the issues you will face; the decisions you must make; and the new opportunities you now have before you. We believe that our presentation is different as we are taking a holistic approach to your situations. We will try and answer some of the questions that are floating around in your head
- Although each of us is unique, we share many similar life events. Many of us experience the excitement of getting married, of buying our first home, and the birth of a child. Many of us care for a loved one and experience the pain of losing someone close to us. We dream of working less, or retirement, and as we experience life, many of these events trigger the need for financial advice. Graph of life
- Example: if you have 2 vehicles, you might stop driving one of the vehicles (and thus cancel the auto insurance) until you find a new job.
- In some situations, interest expenses on monies borrowed to earn income is tax deductible. Talk to the financial institution that you have your mortgage with to see if there is any flexibility with respect to the mortgage payments. Perhaps the financial institution will allow you to pay only the interest for a short period of time. You should sit down with a financial advisor to determine if this is applicable and appropriate in your situation.
- As a rule of thumb, a good starting point is to have 3 to 6 months of salary in emergency funding. However, during a recession, a reserve of 9 months of salary might be required. If you are fortunate to have received a severance pkg take a portion of this money and put it aside as a future emergency fund. A money market fund is an excellent investment choice for this emergency fund given its liquidity and better rates than a typical bank account. You may want to secure a line of credit before a job loss, one that won’t cost anything until it is used. Shop around as interest rates and features vary among lenders. The TFSA allows for tax-sheltered growth of investment income and tax-free redemptions. Once your cash flow has improved, you can re-contribute the redemption amounts to the TFSA since your TFSA room is regenerated in the year following the redemption by the amount of the redemption.
- In addition to the benefits available through your Employer, note that the 2009 Federal Budget announced that the EI maximum benefit period will be extended from 45 weeks to 50 weeks, for a period of two years. We know that losing your job has come as a shock and making important decisions are difficult at this time. But there is a large impact of the decisions you need to make in a timely manner.
- Minimum severance requirements vary from province to province. Depending upon the circumstances of your job loss, and whether you were subject to a collective agreement, you may be able to count on some severance. However, you may not be able to predict the exact amount. Unless your employment agreement with your former employer dealt with severance upon termination, the amount of severance payments you receive may depend on the court decisions in your province. The courts have generally indicated that the amount of severance is governed by your specific circumstances, such as your age, experience, years of service and available opportunities in the job market. In addition, courts have recently awarded damages in addition to severance for the manner in which the employer handled the job termination. It’s important to discuss your job loss with your lawyer. It is important to note that severance is usually fully taxable in the year you receive it. You may be eligible to transfer a portion of your severance, called a retiring allowance, into your RSP on a tax-deferred basis. (sentence deleted) Unused sick leave credits can be considered part of the retiring allowance transfer, however, a payment in lieu of unused vacation is treated as normal employment income. Another important factor regarding severance is that the Income Tax Act allows it to be paid out either as a lump sum or a series of payments. Most employers provide the option to the employee. And remember -- severance may affect commencement of EI. It’s important to sit down with your financial advisor for advice on how to handle your severance package and determine the right course of action
- Note that years of service after 1995 might be taken into consideration in determining the amount of the severance payment, but are not taken into account in determining what can be rolled-over into the RRSP. The roll-over provides an important tax deferral opportunity, in that the funds can be transferred to the RRSP on a tax deferred basis during a high-income year (i.e. the year of the job loss) and be withdrawn from the RRSP when your earnings are much lower, i.e. while you are un-employed. If you worked for related employers, or, where your company had been purchased by another company, then all of your years of employment are considered when calculating the roll-over amount.
- Upon termination of employment, you may be entitled to receive benefits earned under the employer’s retirement plan, if there is such a plan. Deferred Profit Sharing Plan or Group RSP: the options are a cash refund, or a tax-deferred transfer to your RSP. Registered Pension Plan: depending on your age, you may be able to transfer the value of the pension to a Locked In Retirement Account (LIRA), or to the pension plan of your new employer. In some cases, however, you will have to receive your benefit as an immediate or deferred life pension - you should discuss your options with your financial advisor with respect to survivor benefits versus single life benefits, and the pension option versus the transfer option. If you are a member of an RPP whose benefits haven’t vested, which means you were not employed long enough to gain an entitlement to the employer’s contributions made on your behalf, you can receive your contributions with interest as a cash refund or as a tax deferred transfer to your RSP. If you transfer benefits out of the plan, you may be eligible for a Pension Adjustment Reversal (PAR), which would increase your RSP contribution room.
- Review your life and health benefits. In some cases you still qualify, in others you don’t - but can convert to individual coverage without medical evidence. In either case, call your financial advisor to determine which benefits may have to be replaced privately. Make sure that you submit outstanding medical, dental and other claims within the deadlines.
- Investing your severance? Sit down with a financial advisor; he can implement an asset allocation plan tailored to your needs. Remember to keep enough funds liquid to cover any taxes owing in excess of the tax withheld on the retiring allowance. If your new Employer offers an RPP, it may be more generous than your current plan, and it might be advantageous to transfer the Commuted Value of your pension to the new Plan in order to purchase pension credits. You might need to upgrade your employment skills in order to find a satisfactory job. If you decide that post-secondary education is required, the RRSP “Lifelong Learning Plan” would allow you to withdraw funds on a tax-effective basis to cover your education costs.
- Running a business requires a certain psychological make up. You will take on more risk, generally work longer hours, generate new business expenses and need to secure a significant amount of start up capital. Insurance: note that a number of your medical and dental expenses may have been covered when you were working for your employer. You will now have to cover these expenses yourself. You might want to consider an individual health plan, offered on a “guaranteed issue” basis, which is designed for those leaving a group plan. These plans have the flexibility to be fully underwritten for a more comprehensive plan. Disability coverage may be important . Most carriers have introductory plans for new businesses that can provide a base level of protection for between $500 and $2,000 a month. It might be more difficult to obtain a more comprehensive policy as you would not have a track record of self-employed income. In starting a business, you need to develop a business plan (essential if you require financing). You need to assess capital requirements and funding options. Protection of personal assets is an important consideration. RPP or locked-in assets are protected from creditors under provincial pension legislation. In most cases, RSP or RRIF assets would be protected if bankruptcy occurs. Some provinces provide creditor protection for RRSPs and RRIFs where bankruptcy does not occur. Segregated funds may be an investment alternative for registered and non –registered assets. I have information regarding Starting a Business if you’re interested (highlight the Special Report: The Entrepreneurial Dream).
- It is important that your retirement income sources and your anticipated retirement expenses (essential and discretionary) be determined. If you are retired, you can elect to start receiving CPP or QPP benefits as early as age 60. However, the benefits will be reduced by 6% for each year that the benefits commence prior to age 65. A decision on whether to take CPP or QPP benefits prior to age 65 should be reviewed based on your needs and other income sources. Both CPP and QPP contain provisions that would allow you to work and receive CPP or QPP benefits at the same time. OAS benefits commence at age 65 for all Canadians. The benefits may be subject to a reduction if you had not been a resident of Canada for at least 40 years after age 18. You must apply for CPP, QPP, and OAS benefits. Given early retirement, can you afford major purchases, such as a vacation home, right now or will these expenses have to be postponed? How can you protect yourself against loss of purchasing power caused by inflation? Sit down with a financial advisor to discuss your asset allocation plan. When should you start receiving pension income, or income from your RSPs/RIFs/TFSAs/non-registered assets.? It’s important to consider your general state of health and anticipated life expectancy to ensure your retirement nest egg will be sustained throughout your retirement. Will you need to consider, or even want, part-time work in order to supplement your income? You should be reviewing your insurance coverage (insurance needs analysis).
- As noted previously, the retiring allowance rollover can help to tax-shelter a substantial portion of your severance payment. If your severance payment exceeds the “roll-over” amount, consider using the excess amount to fund an RSP contribution, especially if you presently have RSP carry-forward room. This contribution can be made to either your own RSP, a Spousal RSP, or a combination of the two (unlike the retiring allowance roll over which must be made to your personal RSP). In addition to the spousal RSP, another strategy is for the higher income spouse to loan funds to the lower income spouse, who then invests these funds. As long as the loan carries interest at a “prescribed rate” and the interest is actually paid as required by the Income Tax Act, the investment income is usually taxable to the lower income spouse. The interest paid on the loan should be deductible to the lower income spouse and would be taxable to the spouse making the loan. Another strategy is for the higher income spouse to pay the family’s living expenses, while the lower income spouse does the investing. The end result is that more of the family’s investment income is taxable to the lower income spouse. If you elect to take a monthly pension, up to 50% of the annual pension income can be allocated to your spouse for tax purposes, which could reduce the family’s tax bill. Payouts from a RRIF are also eligible for this income splitting, but only if the recipient is 65 years of age or older. The TFSA allows you to save $5,500 a year in an account that is not subject to tax. (new rules and amounts of $11,000 yr going forward) You can also make a gift to your spouse of up to $5,500 a year to be placed in a TFSA. None of the income earned in the spouse’s TFSA will be attributable to you for tax purposes. Finally, if you have to relocate to take another job, you may be able to claim your moving expenses as a deduction. In addition, if you incurred legal expenses to collect severance, damages for wrongful dismissal or pension benefits, these legal expenses might be deductible amounts against severance payments taken into income.
- In addition to important decisions regarding debt management, severance, pension benefits and other employment benefits, now is the time to review the essential elements of your financial plan given your changed circumstances. Do provisions in your will require changing? Do you have proper insurance coverage? Does your investment portfolio need re-balancing? Does your retirement plan need adjusting? Take the time to discuss your overall financial situation and goals with a financial advisor.
- Finally, make the most of the support that is available from family and friends, to employment agencies to your financial advisor. Thank you for your time. (Hand out Special Report MP 1226 Job Loss: Where to begin when your employment ends C3109).
- Are there any questions? (Note to Consultant) Ensure you have everyone fill out the Questionnaire (MP1610) and let them know that you will be contacting them later in the week to set a time to meet in person.