Question

I’m 54 years old and have just been retrenched from the company I joined straight out of university. I had planned to work for another 11 years so this has really messed up my plans. I am concerned about my financial future. Can you help?

Answer

Being retrenched in your 50s is particularly tough. I have helped many people in your situation the past. Companies often hesitate to hire people in this age category as they see them as being too expensive or too close to retirement. 

You may need to reinvent yourself and understand where you can really add value.  I have found that while it is very stressful that may take longer  to get back on your feet, Many people look back and say this was the best thing that happened to them.

So, before you make any financial decisions, it’s important to pause and consider where you will be generating an income going forward

Step 1  -Reflect on Your Career Path by asking

• Why were you retrenched?
  Was it due to a company-wide restructuring due to financial underperformance or has your role become less relevant in the current market?

• Is your skill set still in demand?
  Many industries are rapidly evolving. For example, I’ve worked with marketing professionals who had to pivot from traditional media to digital skills. Today, many IT professionals are being impacted by AI and are needing to reskill.

If your current skill set isn’t aligned with market demands, consider investing in short courses to remain competitive.  Remember you have many years of experience and valuable networks that you can bring to the table.  It often takes a small change to set you off on your new career path

Step 2  – Create a Survival Plan

Once you have a sense of how you might earn income again, it’s time to stretch your resources as far as possible.

• Draw up an austerity budget

List all your monthly expenses and identify where you can cut costs. This isn’t a permanent budget — it’s designed to reduce your spending while you’re between jobs. Focus only on the essentials that are crucial for the family’s survival.

• List all income sources

Include items like UIF, credit insurance for retrenchment, investment interest (remember to include the interest on your retrenchment package)

Now, subtract your income from your monthly expenses and divide your retrenchment package by this number.  This will give you the number of months that your retrenchment package will last for.  You now know how much time you have to get a new income stream going.

• Explore side gigs

While looking for a new job, even small freelance jobs or side gigs can help extend your runway. Every bit of income gives you more breathing room.

Step 3  – Handle Your Retirement Funds Carefully

Avoid cashing in your retirement fund unless absolutely necessary. Early withdrawals (before age 55) are taxed heavily and can damage your long-term financial security.

Preservation funds are your friend

Transfer your retirement benefit to a preservation fund, which allows you to:

• Avoid immediate tax
• Make one emergency withdrawal if absolutely necessary
• Keep your money growing tax-efficiently

Step 4: Protect Your Risk Cover

When you leave your job, you likely lose your group life, disability, and critical illness cover.

If your group policy allows it, consider using the continuation option. This lets you convert your group cover into an individual policy — without medical underwriting. This is especially important in your 50s, when age and health may start to count against you.

Speak to a financial advisor about your cover needs. If you have dependents or debt, maintaining some form of life and disability cover is essential.

Insider Tip: Use the Two-Pot System to Your Advantage

Your retrenchment package is taxed as income if you’re under 55 and don’t qualify for the R550,000 tax-free severance exemption.  If your cash flow allows, you could make a retirement annuity (RA) contribution in your retrenchment year to benefit from a high-income tax deduction.  Then, in the following tax year — when your income may be lower — you can make a two-pot withdrawal, which would be taxed at your new, lower marginal rate. This creates a tax arbitrage opportunity:

• high deduction now
• low tax on withdrawal later

This strategy needs to be carefully managed with professional advice but can provide a valuable tax break during a difficult time.

Final Thoughts

Retrenchments are extremely stressful – I know, I have been through two of them.  However, with the right planning, this can become a turning point, not a financial disaster.