Question

I am a computer programmer at a large IT company. I have been notified that I will be retrenched at the end of August. I am 39 years old, divorced with a 10 year old daughter. I have had health issues in the past.

I am worried that I will not quickly find alternative employment in the current climate and that my severance package may run out before I get my own business off the ground

What should I do?

Answer

This is a situation that is affecting so many people at the moment.  

When I advise people, I always look at the 4 key financial elements to ensure that we do not miss anything important: 

• Cashflow 
• Investments 
• Risk Cover 
• Medical 

Cashflow 

This is one of your biggest challenges.  You do not know how long it will take for you to get another job so you need to manage your money to ensure that it lasts as long as possible.

 You need to do 3 things 

1. Find out how much you spend each month 
2. Find out how much will come in each month 
3. Work out what lump sums of money you will get 

1. How much will go out each month 

• Draw up a budget, listing all your monthly expenses 
• Go through this budget and decide what is essential for you to survive and what can be cut till you get back on your feet 
• Of the things that are essential, look at how you can reduce what you spend on particular items.  You may, for example be using less petrol as you will not be commuting 

You can find an excel spreadsheet with a dummy budget that you can use to easily calculate this amount at financialwellnesscoach.co.za 

You now need to find out where you will get the money for this 

2. How much will come in each month 

Here are some of the sources 

• UIF 

If you contributed to the UIF fund, you will be entitled to monthly UIF payments for a limited period 

• Interest from investments 

If you have any income from investments, including rental properties, list them here 

• Income from side gigs

If you have any income from any other occupations or contract jobs, list them here.  

You will have a gap between what is going out and what is coming in.  This gap must be filled with income from your severance package  

3.  Severance package 

Your employer will generally give you a severance package consisting of the following (it may differ from company to company): 

• 1 week’s pay per year worked 
• Leave you are entitled to but not taken 
• Any bonuses due to you 

If you divide this severance package by the gap that you identified in step 2, you will know how many months you will have before your money runs out. 

B.  Investments 

When you get retrenched, you should receive two lumpsums – your severance package and the proceeds of your retirement fund.

• Severance package 

Severance packages can be small or substantial, depending you your length of service. 

My standard recommendation is to put 6 months’ worth of the gap you identified in step 2 above into a savings or money market account.  If you have an access bond and the discipline not to draw more than your gap, then this would be ideal.  Remember the aim here is to tide you over while you are getting your work life sorted. 

• Retirement fund 

You will be entitled to the contributions you and your employer made to your retirement fund 

My standard recommendation here is to put the full proceeds into a preservation fund.  Do not be tempted to take out some money to clear a pesky debt or go on a holiday.  You are only allowed to make one withdrawal so if you use it for something frivolous, you will not be able to access these funds if you run into serious trouble. 

If you put your full proceeds into a preservation fund, you will be allowed to make one withdrawal from it.  This is a nice stop gap that should it take longer than expecteded to get you new work off the ground you will have access to funds.  This is not a decision that is taken lightly and you must talk to your financial adviser before doing anything. 

• Risk cover 

Because you worked for a large company that had a retirement fund, there is a very good chance that the fund had life and disability benefits.  In many instances, these benefits have what are called Continuous Assurance Options.  These allow you to take out an individual life policy with the same benefits but with no medicals.  

As you have had medical issues, I would certainly recommend that you ask your financial adviser to find out if this is available to you.   

Because you are a single parent it is also important that you have sufficient cover.  As you will be losing any group cover, you need to ensure that your private cover is sufficient 

You need to act quickly though as most retirement funds give you one month in which to exercise this option 

• Medical 

 It is important that you remain a member of your medical aid.  If you  have a break in cover you may find yourself having exclusions and waiting period applied.  

If money is an issue, drop down to a lower level benefit rather than cancel your cover