Laid Off, or accepting an Early Retirement Package? 4 Financial Steps to Take Right Now

The “Canada Strong Budget 2025” has outlined a plan to cut 28,000 positions from the federal public service as part of their Comprehensive Expenditure Review.

The private sector is experiencing similar workforce reductions, with Imperial Oil, Starbucks, and Molson Coors announcing layoffs (among others).

Unfortunately, in Canada, layoffs and early retirement packages are not uncommon. You may have experienced layoffs yourself, know people who have, or have wondered about the possibility of them occurring at your workplace.

These events often catch people off guard. They can leave someone feeling blindsided or even betrayed. According to Stanford University’s Faculty Help Center, common emotions people experience after a layoff include anxiety, shock, and shame.

Admittedly, I have met some people who welcomed a severance package, particularly if they were planning to look for work elsewhere or retire. Even in these cases, the feeling is often bittersweet. Leaving routines and workplace friendships behind can be a challenge.

In either case, losing your job creates financial uncertainty. When will you find a new job? How will you cover expenses? What should you do with your severance package?

In my professional experience, if you are laid off or receive an early retirement package, you should consider the following steps while you look for another job or plan for retirement:

1)      Review household expenses and cash flow. Personally, I think everyone should do this annually. Maybe you do review your spending regularly, or maybe you've put it on the back burner. Either way, now is a great time to do a deep dive into your monthly finances. Determine where you can cut costs. Money to bridge the gap between jobs could come from a line of credit, existing investments, emergency savings, or severance payment. There are plenty of free tools available to help with cash flow management. If you’d rather roll up your sleeves and avoid learning a new piece of software, you can print your last two months of chequing and credit card statements, open a new Excel file (or use a pen & paper), and get started. If you plan to use paid software, I’m partial to You Need A Budget (YNAB) for their hands-on budgeting philosophy.

2)      Determine potential income sources. Will you be claiming EI benefits? Consulting an employment lawyer about your severance? Searching for a new job? Planning to take time off, or retire altogether? Potential sources of income will vary depending on your next steps. For example, EI may be useful if you plan on taking a break, but a lawyer may advise against claiming these benefits if you are seeking additional severance payments from your employer.

3)      Manage your severance pay. Some people will need to use their severance payment to cover expenses while looking for a new job. But if you’re already financially comfortable, then you’re looking to minimize income taxes and put this money to work. Often employers will allow you to roll severance payments directly into a personal RRSP. This can prevent some or all taxes from being withheld from your severance payment.

4)      Transition your employer’s pension and benefits plans. Many government employees have a defined benefit (DB) pension that is extremely valuable. Outside of some specific cases, a financial planner is unlikely to recommend that you commute a DB pension. On the flip side, some government employees (and virtually all private sector employees) have a defined contribution plan. (These may be referred to as an RPP, Group RRSP, DCPP, DPSP, etc.). When you leave your employer, you'll typically want to transfer these funds and exit the group plan. You can transfer these accounts tax and penalty free to an individual RRSP or Locked In Retirement Account (LIRA).

If this is happening to you, it is likely that you are feeling a mix of emotions and financial concerns. We have been helping people in the Ottawa area manage their severance and retirement for many years. If you are interested in working with a professional investment advisor and financial planner, please contact us.