Think HBR

Redundancy: Stressful and costly vs fresh start

Daniel Brown
Rethink Newcastle Financial Planning
Recent and pending job losses will make redundancy a more common issue in many Newcastle, Lake Macquarie and Hunter residents lives. So understanding redundancy and its financial implications has become more relevant than ever for the local community.
Whether your situation is involuntary or of your own choice, redundancy generally makes for a stressful time where significant lifestyle and financial decisions need to be made.
A financial adviser can be your best port of call to guide you through these decisions. The difference between no advice and good advice may be the difference between a very stressful, financially complex and costly situation and an opportunity to maximise a fresh start.
Generally, things start to get complicated with the tax consequences of payments. Each component of the redundancy payout is taxed differently and depends on several factors, so there is no hard and fast way of dealing with redundancy taxation.
Depending on your individual situation and what stage of life you are at, the financial planning opportunities can vary significantly. For example, if you are approaching retirement age you have the option to direct your payment into superannuation to generate tax savings. Furthermore, you might be able to draw this out as a tax effective superannuation pension or income stream.
In the event of redundancy a natural reaction is to review your situation and make cutbacks to maximise cash flow. In the absence of the main household income, people often look for ways to reduce expenses. Some see the cancellation of an insurance policy as a quick solution to reduce costs.
However, it is even more important that you are covered in case something happens during this period. An adviser can assist you review your insurance arrangements to determine whether your premiums could be frozen or funded more effectively. They can also explain how unemployment could impact the potential benefits payable under your insurance policy.
The continuance of good debt management is often front of mind for those who have recently lost their main source of income. However, one common dilemma with lump sum payments is whether or not you should use it to reduce debts.
There are different tax and social security implications between using redraw a facility and offset accounts, which need to be taken into consideration before making your decision.
Being made redundant can be stressful and getting the right advice can reduce the angst that may accompany it. We recommend seeking professional financial advice immediately. By getting a solid strategy in place to manage your debt, superannuation, insurance and the tax implications of redundancy, this will help you get the best outcome for your situation and ensure you are able to start fresh.
Disclaimer: This editorial provides general information only. Before making any financial decisions, consult a financial planner to take into account your individual needs.
For further information contact Rethink Newcastle Financial Planning on (02) 4962 4440, email or visit
Daniel Brown Daniel Brown
Is Senior Financial Planner, Redundancy Expert and Partner at Rethink Newcastle Financial Planning. Dan has over 11 years’ experience as a Financial Planner, he is passionate about helping support change in his client’s lives.