What to do with a redundancy payout
Make sure you plan your next move carefully to make the most of your payout
Make sure you plan your next move carefully to make the most of your payout
You wouldn’t really call a redundancy a career highlight given you’re losing your job. But you’re being compensated for that loss with a lump sum of money – in some cases up to a year’s salary or more.
Experts agree that a redundancy is not necessarily the career death knell it may at first appear.
For many, a redundancy and the payout that comes with it, can be the opportunity for a new start; perhaps a career overhaul, the chance to start a business, a slide into early retirement or the opportunity to boost your superannuation or pay down your mortgage. It could even be a long-awaited extended overseas holiday.
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The opportunity a redundancy brings really depends on where you’re at in life, your age – and the amount of money you receive.
“It can very much be a re-start,” says Steve Mickenbecker, money expert at finance comparison site, Canstar. “People (who get a redundancy) tend to re-visit life goals, they ask themselves ‘What do I want to do? What do I value?’. The beauty is you’re being paid a sum that gives you some breathing space to work this out.”
What you do with your redundancy payout will depend on whether you need to live on the money while you look for another job. If you’re on the job market, you may need to make the money last an uncertain amount of time.
If this is the case, the first step should be to make a personal budget, which you can do using online tools and calculators, or with the help of a money coach or financial advisor. Beyond that, your options are simple – invest it or spend it – says Noel Whitaker, a finance columnist and author of Retirement Made Simple. However, the best financial roadmap will vary from person to person.
“I would start by talking to an advisor or your accountant at the outset who can explain the tax implications associated with a redundancy payout, which can be complicated,” Whitaker says. “The best thing you can do regardless of which option you take is to stay as flexible as possible. For instance, you can pay down your mortgage, or you can put your money into your mortgage off-set account, if your loan has one, so you can still access it should you need it.”
He says age also plays a factor. If you are older, you may want to put it in your super knowing you won’t be losing access to it for long, an option that is less attractive to someone in their 30s, for instance, who will not be able to access that money for several decades more.
Bryan Ashenden, the head of financial literacy and advocacy at wealth management company, BT, breaks down the figures on investing versus super.
“With an investment, you will get the benefit of not only the dividend or return, but also capital growth depending on how you invest the money,” Ashenden says. “For example, a $20,000 investment may generate a four per cent income return (or $800 per annum) but may also provide a capital growth of five per cent per annum (or $1000). So, after one year, your $20,000 investment is worth $21,000 and your $800 income return could either be re-invested or perhaps used towards repaying some of your home loan principal or interest.
“If invested via super, with the same rates of return, the $800 income return would be worth $680 after tax, but because it is locked in the super system until you access it, it can be reinvested (with the $1000 capital growth), meaning you have $21,680 as a net investment after one year.”
The added benefit of investing via super, he says, is that when you access the funds after the age of 60, the money comes back to you tax free. For some, the temptation to invest in a small business venture could also be alluring. But that could be a high risk option.
“There are a lot of challenges (to small business) in today’s environment,” says Small Business Association of Australia CEO Anne Nalder. “It’s not a booming period, with inflation tipped to go close to eight per cent by the end of the year and interest rates also going up.
“If you are going to invest in a small business, look at the potential growth areas and go into something you’re good at, familiar with and passionate about.”
Ultimately, while taking a holiday is a ‘sunk cost’ it could be just the refresher you need before making your next move.
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
While most U.S. workers are putting in fewer hours, men in the top 10% of earners cut back their time on the job the most, according to a new study
American workers have cut the number of hours they spend in their jobs since 2019, but no group has dialled back its time on the clock more than young, high-earning men whose jobs typically demand long hours.
The top-earning 10% of men in the U.S. labor market logged 77 fewer work hours in 2022, on average, than those in the same earnings group in 2019, according to a new study of federal data by the economics department at Washington University in St. Louis. That translates to 1.5 hours less time on the job each workweek, or a 3% reduction in hours. Over the same three-year period, the top-earning 10% of women cut back time at work by 29 hours, which translates to about half an hour less work each week, or a 1% reduction.
High-earning men in the 25-to-39 age range who could be described as “workaholics” were pulling back, often by choice, says Yongseok Shin, a professor of economics, who co-wrote the paper. Since this group already put in longer hours than the typical U.S. worker—and women at the highest income levels—these high earners had longer work days to trim, Dr. Shin says, and still worked more hours than the average.
The drop in working hours among high-earning men and women helps explain why the U.S. job market is even tighter than what would be expected given the current levels of unemployment and labour force participation, Dr. Shin says.
“These are the people who have that bargaining power,” Dr. Shin says of the leverage many workers have had over their employers in a tight job market. “They have the privilege to decide how many hours they want to work without worrying too much about their economic livelihood.”
The paper published by the National Bureau of Economic Research, which isn’t yet peer reviewed, suggests high earners were more likely to benefit from flexible working arrangements, which could be a factor in reduced work hours.
Before the pandemic, Eli Albrecht, a lawyer in the Washington, D.C., area, says he worked between 80 to 90 hours a week. Now, he says he puts in 60 to 70 hours each week. That’s still more than most men in America, who averaged 40.5 hours a week in 2021, according to federal data.
Mr. Albrecht’s schedule changed when he shared Zoom school duties for two of his young children with his wife. He’s maintained the reduced hours because it’s making his relationship more equitable, he says, and gives him family time.
“I used to feel—and a lot of dads used to feel—that just by providing for the family financially, that was sufficient. And it’s just not,” Mr. Albrecht says.
The downshift documented by Dr. Shin and his colleagues occurred as many professionals have been reassessing their ambitions and the value of working long hours. Emboldened by a strong job market, millions of Americans quit their jobs in search of better hours and more flexibility.
Overall, U.S. employees worked 18 fewer hours a year, on average, in 2022 compared with 2019, with employed men putting in 28 fewer hours last year and employed women cutting their time by nine hours, data from the U.S. Census Bureau’s Current Population Survey show. The average male worker put in 2,006 hours last year, while the average female worker logged 1,758 hours.
Separate data from the Census Bureau suggests that men with families, in particular, are working less. Between 2019 and 2021, married men devoted roughly 13 fewer minutes, on average, to work each day, according to the American Time Use Survey, which hasn’t yet published 2022 figures. They spent more time on socialising and relaxing, as well as household activities, according to men surveyed by the Census Bureau. The amount of time unmarried men spent on work changed little during that same period.
As high-earning workers in the U.S. cut back, low-wage workers increased their hours, according to Dr. Shin’s research. The bottom-earning 10% of working men logged 41 hours more in 2022, on average, than in 2019. Women in the lowest earning group boosted their hours worked by 52 last year compared with 2019.
While women work fewer hours than men, the unpaid labor they perform outside of their jobs has been well documented. Many working mothers take what’s termed a “second shift,” devoting more time outside work hours to child care and housework.
Maryann B. Zaki, a mother of three who has worked at several firms, including in big law, recently launched her own practice in Houston, giving her more control over her hours. She says she’s noticed more men in her field opting for reduced schedules, sometimes working 80% of the hours normally expected—which can range from 40 to more than 80 a week—in exchange for a 20% pay cut. For the average lawyer, that would amount to a salary reduction of tens of thousands of dollars each year; such arrangements were initially offered to aid working mothers.
Responding to new expectations of work-life balance may be particularly vexing for industries already facing staffing shortages, such as those in medicine. Dr. Lotte Dyrbye, the chief well-being officer for the University of Colorado School of Medicine, said she often hears from early-career physicians and other medical professionals who want to work fewer hours to avoid burnout.
These medical workers are deciding that to be in it for the long haul requires a day every week or two to decompress, Dr. Dyrbye says. But as staff cut back their hours, it costs medical organisations money and may compromise access to care.
Following the devastation of recent flooding, experts are urging government intervention to drive the cessation of building in areas at risk.