Impact of Downsizing

John (age 58) and Kathy (age 56) saw retirement around the corner. Then one day, John learned that his company was downsizing and he was offered a severance and told that after 21 years of tenure with the firm, his services were no longer required. Filled with emotions and financial concerns, John and Kathy came in to see Len.

John and Kathy had many decisions to make and even more questions. John had 48 hours to accept a severance package. He would have to decide if he should leave his pension with his now ‘former’ employer or transfer it to a Locked-in RRSP. He had 30 days explore what his group benefit plan offered for coverage conversion options. John had an option of transferring part of the severance to his RRSP as part of a retiring allowance in addition to transferring some of the funds into his RRSP plan as a contribution. John and Kathy also wondered how this would impact their retirement plans.

John and Kathy had been working with an advisor where they bank and investing in some mutual funds but felt that the person was not qualified to deal with these more complicated issues and they wanted to deal with someone with more experience and who was also a Certified Financial Planner. After quickly interviewing a few local advisors, John and Kathy felt that they were most comfortable with Len Colman’s Holistic Wealth Management approach and his professional process in dealing with his clients.

Len gathered information from John and Kathy and provided some analysis for them to help in the decision process. This included:

  • The first thing was for John to visit with an employment lawyer and seek an opinion and advice regarding the amount and the structuring options of the severance package. These fees for advice as it relates to employment are generally tax-deductible in Canada.
  • Calculation of the amount of the severance that is available as a retiring allowance and the amount of RRSP contribution room. In this case, John was able to transfer $14,000 of his severance directly into his RRSP without taxes being withheld and without using any of his existing contribution room. In addition, John also had $9,500 of unused RRSP contribution room available. The balance of payment for the severance would be taxable to John.
  • Unfortunately, John had less than ideal health and was unable to obtain the desired private insurance coverage for critical illness or life insurance. Following Len’s advice, John was able to convert some of his group insurance coverage under a guaranteed 30-day conversion privilege.
  • Finally, Len provided John and Kathy with an integrated and comprehensive (complete) financial plan which included three different planning options.
  1. One was for John to look for new, full-time employment (potentially at a lower wage than previous).
  2. The second was for John to seek part-time employment.
  3. The third was to project the retirement lifestyle that would be available should John either choose not to work or be unable to obtain new employment.

The end result is that John and Kathy have a clear understanding of how their lives will be impacted as a result of the unplanned change in John’s employment. They feel better knowing that they have found a professional they can trust and knowing what their options are and the impact these decisions will have on their lives.