Canadian Personal Finance Blog

So today I had an excellent presentation about the financial aspects of my severance from my employer, by a C.A. who is also a Financial Planner. He brought up several very interesting points, one that I had heard about but didn’t understand and another that I wasn’t even aware of (and caused me to write down many more questions for my one on one session with him in the near future).

RRSP Severance Rollover

Up until 1996 the rules for moving severance packages into RRSPs was pretty wide open, but then in 1996 the rules changed and you were not allowed to simply plow your severance directly into your RRSP (if you didn’t have room to put the severance allowance in your RRSP). The accommodation for folks like me that were still employed (and have been) by the same employer before 1996 (and haven’t received a severance package), I get a $2000 per year RRSP “bump up” for every year I worked for my employer before 1996 (and working in the year, could entail only 1 days work, too bad I didn’t work there as a Co-Op student).

For me this means that since I was employed from 1988 to 2008, I get 8 years counting in there or an RRSP bump up (for this one time) of $16,000 which I can put some of my severance package in (which is a good thing).  Since it is so late in the year, any dollar I shelter most likely saves me 46 cents of taxes I don’t have to pay on this year’s CRA tax forms (sorry Mr. Harper).

Severance Income is the Worst Kind of Income

Well, if there is such a thing as bad income, a severance package is that, because you get a T-4A for this income, but this income will not increase your RRSP room for the year, and it is not really counted as income per say (other than the fact that it gets TAXed like it is income). What I am trying to say is that severance is not an EARNED Income, thus you don’t pay CPP or EI premiums against it, but you don’t get RRSP room for it either.  I didn’t know that one either.

Another Idea the Lifelong Learning Program

Instead of simply cashing in RRSPs to pay for going back to school, the government has set up the Lifelong Learning Plan (LLP) where you can withdraw $10,000 in a  year and $20,000 total over 4 years to help pay for your schooling. There are rules for you to repay your RRSP the amount you borrowed to pay for your education, but I thought this would be a really good idea (for me or my wife). I don’t think this is something I will use now, but it is an interesting concept.

Best Joke to Say Around Former High Tech Workers

The presenter had a great comment for the section we skimmed over, “So this should be a short section, it’s about what to do if you make profits on your stock options during your severance period…”, everyone in the room burst out laughing, as did the instructor. If you aren’t in High Tech, you might not get it, but if you saw the Simpsons episode where it showed a high tech company giving out Stock Options from a toilet paper roller, you might get the joke.

I learned a lot today.

As I have said, as part of my financial clean up for my severance package I must go to my bank and attempt to get them to actually help me, and possibly earn their exorbitant fees (although after reading on Nancy Zimmerman’s blog about the Citizen’s Bank, maybe I need to reconsider who I bank with).

RESPs How Do You Withdraw Money?

This question continues to confound me on the TD web site.  I know I need to do an Educational Assistance Payment from the RESP, so that I can take advantage of the CESG payments made by the government. It is simple to pay money into the RESP, but extracting money from the RESP is a much more interesting thing to do, so I must now figure out how this works, and will have to fill in a bunch of forms.

Locked In Retirement Account (LIRA)

Given I will be extracting funds from my pension, it must go into a locked in retirement account, so I must now find out about how TD Canada Trust does this kind of account. I have one with SUN Life, which is of no bloody use to me (so it will be folded into whatever I create for this side of things). Hopefully this is a self-directed type investment creature and I can take advantage of one of the Lazy Portfolios that the Canadian Capitalist has spoken of previously.

RRSP For Me

As I have said previously most of my RRSP money is in spousal RRSP’s, because I thought I was going to have a nice pension (silly me), but now I have a bunch of devices that I was collecting at work that I must now transfer over to a single RRSP in my name. 

No Fee Banking

I am paying $12.95 a month again for my banking, so I will be pointing out what the Citizen’s bank has to offer, and what PC Financial offers as well, and how I’d like to have free banking again, given all the business I will be bringing with me. Not sure if I will get it given to me this time, but we shall see, this time.

I look forward to the 4 hours I will have to spend at the bank.

Having worked in High Tech for 20+ years, I have heard many tales about lay offs and how they have “gone down” for some of the High Flying start ups of the late 90’s.

One former colleague told me about how his severance package was his laptop PC, and his Aeron chair (the company had burned all of their cash and the receivers were coming to take everything that was not nailed down). Another told me about getting two weeks notice, and a promise of a package, which never materialized, because creditors got wind of it, and garnished it from the company.

I am luckily nowhere near that situation, if anything, this is a financial opportunity for me, and I am going to have to learn a great deal about the Canadian Tax system in the next few weeks. I was under the naive assumption that it would be relatively straight forward with my severance package, but that is not the case. There are options and scenarios that I must think out and figure out what the optimal financial model will end up being for me (given my age and current financial status).

My vagueness in my description is intentional because I am just not sure about a lot of the financial twists that will be transpiring in the near future.  I will also need to build a certain amount of “crystal ball” gazing about what I think may be happening in the future and what will be important to me as well. Some of the points already in my mind to think about are:

• Do I think I can find a job very soon (i.e. the next month or so)?
• Will I find a comparable paying job in the near future (next 4 months)?
• Which is more important Debt Reduction or Retirement Savings? (right now the answer is both, with an emphasis on Debt Destruction).
• Do I need benefits in the near future? Yes, I think so.
• Should I keep the life insurance from my previous employer? Yes!

Only some of the simple concepts and ideas I must weigh in any decisions in the next month or two.

More likely I will be writing my opinions up, as much for me to think and read my own thoughts, but also looking for any input from my highly gifted readership as well.