While you are in a fragile emotional state, you will be called upon to make lots of important decisions about unfamiliar financial issues. These decisions will have massive financial implications later in your life.

Having been retrenched myself I have first hand experience of what is involved and what helped me get through it. I have put together a guide, based on my own experience as well as my background of being a certified financial planner to help you get through this.

Download my Retrenchment Budget spreadsheet to assist you with your financial planning during this difficult time:

Retrenchment-Budget.xlsx

1. Don’t take it personally

It is unfortunate that the company you worked for ran into trouble and need to reduce headcount. It is not your fault.

Don’t make the mistake of confusing your job with who you are. Your job is one aspect of your life but you are so much more.

2. Understand why your employer downsized

There was a reason why your previous employer downsized.

Try to understand why this happened.

Was it just because they lost a contract?

Or

Was it because of a deeper structural reason which is making their business less relevant?

For example, were they trying to sell fax machines in a time of email? If this is the case, then give some thought as to whether you should remain in that particular industry.

3. Update your CV

Before you do this, take a hard and honest look at what you do.

• Will it still be relevant in the business world going forward?
• What skills and experience of your will be relevant going forward?

Emphasize these skills when you update your CV.

4. LinkedIn

Update your LinkedIn profile and start interacting with people in your industry.

It is important that you keep up to date with what is happening in your field and that you actively build your network.

Many recruiters use LinkedIn to look for candidates.

5. Cashflow

This is one of your biggest challenges.

You do not know how long it will take for you to get another job so you need to manage your money to ensure that it lasts as long as possible.

You need to do 3 things:

1. Find out how much will go out each month.
2. Find out how much will come in each month.
3. Work out what lump sums of money you will get.
4. How much will go out each month

• Draw up a budget, listing all your monthly expenses.
• Go through this budget and decide what is essential for you to survive and what can be cut till you get back on your feet.
• Of the things that are essential, look at how you can reduce what you spend on particular items. You may, for example be using less petrol as you will not be commuting.

Hint: I created a handy excel spreadsheet with a dummy budget that you can use to easily calculate this amount. Drop me a message and I will gladly forward it to you.

You now need to find out where you will get the money for this.

2. How much will come in each month

Here are some of the sources

• UIF

If you contributed to the UIF fund, you will be entitled to UIF ranging from R3 500 to R6 730 a month. This will be paid for a maximum of 12 months

• Interest from investments

If you have any income from investments, including rental properties, list them here

• Income from side gigs

If you have any income from any other occupations or contract jobs, list them here.

You will have a gap between what is going out and what is coming in. This gap must be filled with income from your lump sums

3. Lump sums

You will have access to the following lump sums:

• Severance package

Your employer will generally give you a severance package consisting of the following (it may differ from company to company):

• 1 week’s pay per year worked.
• Leave you are entitled to but not taken.
• Any bonuses due to you.
• Proceeds of your retirement fund.

This needs to be treated with extreme care as this money is what will sustain you when you are older. Only touch it if you are in dire straits and you have spoken to a qualified financial planner.

Your financial adviser will help you structure your investments so that you can access these lump sums to supplement your income till you get back on your feet. There are tax implications so this needs to be done carefully.

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Download my Retrenchment Budget spreadsheet to assist you with your financial planning during this difficult time:

Retrenchment-Budget.xlsx

1. Be careful of resigning and taking a voluntary retrenchment package

If you are retrenched, you are entitled to a severance package. This is typically 1 week’s remuneration for every completed year of service.

However, if you take a voluntary retrenchment, this is classed as a resignation and the payout is taxed at your normal marginal rate. The generous tax benefits given to normal retrenchments do not apply here.

For example, consider two employees (Jack and Joe) who both joined a company 20 years ago, both are 45 years old and both earn R40 000 a month. Jack elects to take a voluntary retrenchment while Joe is formally retrenched by the company.

The company pays out a severance benefit equal to 1 week of salary for every year worked so both Jack and Joe get 20 years x R10 000 = R200 000

When it comes to tax, the treatment is different. If you are formally retrenched like Joe, the first R500 000 of your benefit does not attract tax. This can have quite an impact on the benefit you get.

Employers may offer a slightly better package to encourage you to take a voluntary package.  In this case, it is important that you do the numbers first and take the tax into account before making a commitment.  It is worth chatting to a certified financial planner who can help you make the right choice.

2. Invest your retirement benefits wisely

When you are retrenched, you are entitled to any money that you have in a company pension or provident fund.  Again, the decisions you make have important consequences so this is not something to do without getting professional advice

Options open to you include:

• Taking all or part of your retirement benefits in cash. There are tax consequences here and you will be setting yourself up for poverty in later years.  This is generally not recommended
• Moving your proceeds to a retirement annuity. Here you do not pay any tax but you will not be able to access any of this money before you turn 55
• Moving your proceeds to a provident fund. You do not pay any tax and you will only be able to access the funds after you turn 55.  However, you will be allowed to make one withdrawal from the provident fund before you turn 55.  This can be a nice option should you run into major financial difficulties.

Retrenchment is an extremely stressful time and you will be called upon to make some important decisions.  It is important that you get a professional to help you make the right call 

Disclaimer The above does not constitute financial advice.  It is offered as a perspective to help you make sense of these important developments.  Each person’s situation is unique and a proper analysis is needed before advice may be given

Take a look at these useful links as well

Moneyweb 

https://www.moneyweb.co.za/financial-advisor-views/what-to-do-if-you-get-retrenched/

EBnet

https://www.ebnet.co.za/single-post/2020/04/09/Getting-real-about-retrenchment—Part-2

SARS

https://www.sars.gov.za/ClientSegments/Individuals/Tax-Stages/Pages/Tax-and-Retrenchment.aspx

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