Retrenchment and Your Financial Future

Facing the emotional aspects of retrenchment

Having cash available when you’re retrenched means less stress, but it doesn’t entirely take away the emotional impact of retrenchment. Many people experience feelings of horror, panic, failure and inadequacy, all of which are compounded by a loss of routine and less contact with colleagues.

Spend some time putting the situation into perspective and coming to terms with your changed circumstances. Even if you didn’t particularly love your job, you may want to take some time out to mourn the end of an era in your life. Be sure to surround yourself with positive people who can help you see the positive side of retrenchments. This is an opportunity to look for a job better suited to you or the chance to start a new career entirely. If you have funds available to you, you might decide to go back to studying.

Update your CV – and don’t be afraid to seek out professional advice if necessary. It might have been some time since you were in the job market and giving your CV a new feel and structure could open new, unexpected doors for you.

How would retrenchment affect your financial well-being?

Educate yourself about the impact of retrenchment on your financial well-being and what to do if you lose your job. While this is a scary thought, it is always better to hope for the best but plan for the worst.

If you are retrenched, you will be entitled to a severance package.

Tips on what to do before and after retrenchment

Get counselling

Retrenchment is a financially and emotionally stressful experience. Consider counselling before making any major financial decisions. Many financial decisions will be made, and budgeting and cutting costs are unavoidable. However, it’s important to put thought and consideration into these decisions.

Keep paying medical aid contributions and insurance premiums

These are essential and can prevent further financial distress should something else unexpected happen. Ensure you and your family are on a medical aid option that meets your needs. Rather reconsider any luxury goods and services or cut back on wasteful expenses.

Save for emergencies

Consider contributing towards an emergency savings pot. Aim to save at least three times your monthly salary as a financial buffer. This will help take some of the pressure off if you are ever retrenched.

Get advice

Because personal circumstances differ between individuals, seeking financial advice from an accredited adviser could prove beneficial in limiting expenses and managing your money so that it can stretch further and meet your specific needs. Also consider your fund’s retirement benefit counselling options, which may assist you in the financial decisions related to your retirement savings.

Keep learning and growing

In an era where technology is advancing inevitably, individuals must constantly educate and upskill themselves to remain relevant in the market.

Dealing with retrenchment: Financially and emotionally

It's not easy to deal with the shock, disappointment and stress of being retrenched. It could impact your health and wellbeing. However, if you’re prepared financially, it’s easier to pick up the pieces after an unexpected loss of income or derailed career plans.

This means you need to change the way you handle your money, ensuring you have a contingency plan and a decent nest egg to cushion any financial blows.

Through a smart investment strategy and sound advice from your financial advisor, you could be better prepared for life’s unexpected life events, like retrenchment. An emergency fund is important, but it’s also essential to take out a life insurance policy to protect you and your family. Financial advisors typically recommend that you have the equivalent of at least six months of your salary saved. This will give you some piece of mind, knowing that you can cover your expenses in the short term while you seek other employment opportunities.

Investing after retrenchment

So, you’ve been retrenched. The good news is that some people see their careers receive a positive boost after they lose their jobs. The bad news is you’ve lost your job. With that comes a tidal wave of emotions, from anger to shame to disappointment to fear. Ironically, just as your mind is in the midst of all those emotions, you’re going to have to make some serious decisions about your finances and about your investments – and whether you’ve seen this coming or not, you’re unlikely to be in the right headspace for calm, rational, long-term decision making.

As tough as it may be, don’t panic and don’t do anything rash. Take care of the necessary admin first (for example, making sure your retirement, investment, banking and medical aid accounts are linked to your personal email, and not your soon-to-be-defunct work account). Then, set up a meeting with your financial adviser.

Retrenchment packages vary from company to company. Whatever your pay-out is, when you receive it, you’ll need to carefully plan what to do with it – and that’s where your financial adviser will be able to help. They’ll probably advise you to not blow it on your dream holiday, house or car, even though you may be tempted to do so. It’s probably wiser to invest a portion of it in a unit trust where it’s easy to access if you need it. Throughout the process, speak to your financial adviser about the tax implications of your various options, as you’ll want to avoid paying heavy taxes on any pay-outs!

Depending on how much you’ve saved and how long it takes you to find another job, you may end up in a situation where money is tight and you need to dip into your pay-out to cover your monthly expenses. This is where unit trust investments come in handy: when you don’t need the money, it continues to grow, and when you do need it, it’s easily accessible.

Remember that there’s a difference between your retrenchment package and your retirement savings. If you’ve been working for a while, you may have amassed a large (and very tempting) sum of money in your pension fund. Don’t blow it. It’s likely that you’ll have to leave your ex-employers’ retirement fund, in which case you’ll be given the very tempting (but tax heavy) option of taking the cash or preserving it in a preservation fund. Rather stay in the market: re-invest it in an appropriate fund and avoid a hefty tax bill now and even heftier regrets later in your life.

Once you’ve made a clear, well-considered financial plan around your short-term budget, your medium-term investments and your long-term retirement savings, your next urgent step is to weigh up your career options. If you’re still young and marketable, you may want to start sending your CV to prospective employers. If you’re older than 55, you may consider taking an early retirement. If you’re thinking of doing that, be sure to speak to your financial adviser about it first and be very clear about the financial implications