By Sherwin Govender
It’s arguably one of the worst moments in anybody’s life. Getting to grips with retrenchment can be daunting, but examining your options, especially regarding your retirement savings and investments, is a critical step to financial confidence. Here are 10 tips to help you (financially) survive this stressful time.
Tip #1: Don’t take it personally
It’s easy to take retrenchment personally. You’re a loyal employee who dedicated much of your time and energy to your job. The reality is that it’s not your fault. You didn’t do anything wrong. Your company probably came to a point where they needed to make a financial decision for its future existence. Retrenchment is the least favourable practice and last line of defence in business, but often is unavoidable. The sooner you come to terms with this, the sooner you can move on to the new possibilities that await you.
Tip #2: Overhaul your CV and get it out there
This may seem obvious, but looking for a new job takes time, and in many instances, you may not even make shortlists. Ask the HR specialist handling your retrenchment about the possibility of redeployment. Often in big organisations, there may be opportunities in other divisions. Be open to the possibility that you may need to take a pay cut in a new role. Don’t be disheartened when you’re not getting any feedback for jobs you have applied for. Review your CV and tailor it to jobs on offer, highlighting the skills and experience that you have that fit the job spec. (This doesn’t mean being dishonest about your skills or experience. Also, falsification of your qualifications is a criminal offence.)
Tip #3: Reinvent yourself and your career, but … within reason
If you are thinking of starting a new business venture, be realistic about the projects and business ideas that you get tempted into. A new business – or even buying an existing one that looks profitable on paper – can drain you financially. Develop a coherent business plan and get a reputable business consultancy or your business banker to vet the details. Now is not the time to take uncalculated risks.
Tip #4: Cut your household budget
Bills will continue to reach you, while the salary that you have been receiving monthly won't. Now is the time to go through your monthly household budget with a fine tooth comb. You need to be strict and clinical about the expenses that are unavoidable (such as your bond repayments or kids’ school fees) and those that are luxuries and can be suspended until you have a regular income again.
Tip #5: Appoint a financial adviser
This truly is the best time to get a financial adviser. There are some big, important financial decisions to be made, and a qualified financial adviser can help you make them with confidence. For example, if you have been working for the same company for a number of years, you probably have built up a sizable pension fund. There are some investment decisions that you need to make about the future of this money. You don’t want to make any mistakes! Getting advice from a financial adviser experienced in retrenchments becomes invaluable. Also, if you have medical aid through your company, you need to decide what to do when this benefit comes to an end.
Tip #6: Stay away from your existing retirement savings
Cashing in 100% of your pension fund can be the most financially damaging decision you can make. Your retirement savings is your money for the future. It may be tempting to cash it all in and treat your pension fund like you’ve just won the Lotto, but don’t forget why you have this money saved up in the first place. If you cash in the entire pot, you’re robbing yourself at age 60 – it’s that simple. Before you cash in even a portion of the fund, find out how much tax you’ll have to pay on that money (see “Tax on your benefits: the different scenarios”). That should be reason enough for you to keep your pension fund invested.
Tip #7: Transfer your pension savings into a preservation fund
As the name suggests, preservation funds protect your pension money. You can withdraw the money later, but the longer it stays there, the better. Together with your financial planner, you can decide how the money is invested.
Tip #8: Calculate how you will live until you start earning again
As mentioned earlier, cashing in your pension fund is not a good idea. If you are worried about covering your living expenses, find out the following, before you touch your retirement savings:
• What retrenchment or severance package is your company offering you? Your employment contract should include this information.
• How long will the retrenchment package last? Take into account your monthly living expenses, and where you can cut unnecessary spending.
• What other savings or investments do you have access to? It’s not ideal to dip into any investments, but in emergencies your savings (other than your pension fund) can tide you over until you start earning again.
Tip #9: Check if you have retrenchment cover
Check the cover on your credit card or retail store accounts. Perhaps there is built-in retrenchment cover you didn’t know about, that is included in your service fees. If you have a policy that covers retrenchment specifically, good for you. It could help ease your financial burden.
Tip #10: Speak up
Don’t be embarrassed to ask for better interest rates, reduced instalments on your accounts or even payment holidays. Whatever you do, don’t ignore your debt obligations. If you are struggling to keep up your debt payments, a conversation with the credit manager at your bank or a debt counsellor will go a long way in preventing judgements and blacklisting. Remember, your credit record is taken into account when you apply for a job, so you want to keep that as clean as possible.
Sherwin Govender is a Business Development Manager at Glacier by Sanlam.