Retrenchment, Investment and your Family

By Finbar Garcia, LUTCF, FSS, MFA

During the last few weeks, we heard about employees at TSTT and other companies being given retrenchment notices with possible pay-outs of sums of money based on a certain criteria and discussions with their respective unions. While some of us may be concerned about these persons being placed on the breadline and their families in need of immediate financial support, these employees will need some financial counselling, urgently.

Having been laid off can and would bring some hardship to the immediate families involved. However, there needs to be a disciplined approach moving forward, a proper financial assessment must be done as to the Income Lost versus Pay-outs Received, Current Monthly Expenses versus Cost of Living and Employment years ahead versus Retirement age. How employable are you after retrenchment?

So, let’s look at the Income Lost versus the Pay-out Received. In this case, with TSTT, it was mentioned that on an average, these employees can get as much as $700,000 (may be subject to taxes). The scale can be lower than $500,000 or as high as a $1,000,000 for some employees. Now we all know what happens when someone receives lump sums of cash, so caution is needed. The advice here is how to navigate through these potentially difficult times financially with little disruption of your normal standard of living. First, you need to calculate 24 months of your income and set it aside to meet all existing monthly expenses from the pay-out received. Try not to create additional expenses. During this time, it is expected that you would be seeking other employment opportunities as fast as possible. This initial approach is to sustain your family’s standard of living for the first 12 months, while keeping the other 12 months secured. The next approach is to reduce any short-term loans or credit cards, these being loans less than 24 months of minimal balances. This will allow a little breathing space between income and expenses if you cannot secure a job within the 24 months period. Next you will need to set aside a portion of the pay-out monies into an interest-bearing account or Fixed Deposit account that will yield a good return.

If your choice is a fixed deposit, let the larger deposit be for at least five years and another one with 12 months’ income for your second-year income period. This would allow for some additional income stream. Remember it’s always ‘You at work first, then your money at work for you’, so don’t go on any wild spending spree. The residual amount should be kept in another account that you can have easy access to just in case of any emergencies, as you may not be fully back to your regular type of job or even income. If based on your current age, you want to consider early retirement, then this may create a twist on how you clear off any debts and your current budget, as you may have to request early vesting from your pension plan administrator. This can take some time to process based on any contractual arrangements with the pension plan provider.

Monthly expenses v cost of living

Now for the monthly expenses versus cost of living. As with any other employed individual, cost of living will continue to rise, more so with all that is happening in the world today. Once you have set aside that amount needed for the first 12 months, you will need to tighten your financial belt when it comes to spending. Try as best as possible to live within a budget, most likely an adjusted one as you are now unemployed. Once you are back fully employed, you will need to do some adjustments with the funds that you initially set aside to meet the first 12 months’ income and the Fixed Deposit that was set for the second 12-month period, as you would be in receipt of a monthly income. The idea is to save as much as you can even if you are fully employed. Now some of you may be thinking of entering some business arrangement. While it may be the ideal opportunity, caution must be taken as to the type of business venture and a proper feasibility study must be done as the bulk of your pay-out can be used up in this business venture and you will have to wait for some years to see actual returns on this investment.

Let’s look at a simple scenario as to a pay-out and how to deal with all that was said. These fixed deposits can yield as much as $4,000 to $5,000 in interest per year, which means some extra income.

Once you are fully employed again, and hopefully by the beginning of your second year, these can be adjusted to pump more into savings. If you opted for early retirement as mentioned, it’s best to seek advice soon from your administrator on what additional lump sums you are entitled to and your projected monthly pension from that plan, this would be separate from your personal plan and your NIS. All this would be needed in planning financially for the rest of your life.

We can meet to discuss in detail all the options available to you and your family.

“Until you change you thinking, you will always recycle your experience”…powerofpositivity.com

Send questions to: myfinancialadvisor2020@gmail.com