New Job--Did I take Care of Everything?

I was recently talking with Carol Bezaire, Vice President, Tax, Estate & Strategic Philanthropy at Mackenzie Financial. We were discussing people in transition from one job to another, a promotion or moving to retirement.

We realized there were some pretty common mistakes that people make that could cost them REAL money over the long term.

This article will cover a few of the common things people do miss; however, we have created a checklist to bring awareness for people leaving an employer and for people starting a new job that are more comprehensive than this article.

Leaving a job (voluntarily or not)

When you move from an employer and receive a severance package, NOT tax sheltering a severance package when RSP room is available. People think that they may want that money to live on, but the withholding tax on a lump sum is about 50%. Taking advantage of unused RSP contribution room allows the individual to keep more of their severance. If they need to take some money out there is a good chance they will be in a lower marginal tax rate than when the severance went into the RSP.

The reality is people get let go from employers.

If leaving the job was not voluntary Carol was saying a mistake she sees is not meeting with an employment lawyer to ensure the individual receives everything they should.

I would agree with Carol. A short meeting with a lawyer can put your concerns to rest and the cost is minor relative to the peace of mind. LinkedIn is a good place to search if you don’t have a lawyer.

Not submitting eligible expenses for health and dental that were incurred before you left. Many group benefit plans are on a reimbursement basis, which means you pay and then put in your receipts for reimbursement. If you incurred a covered cost but did not submit, then that is dollars out of your pocket. Most companies will allow you to submit up to 90 days after you left the company to get reimbursed for expenses incurred while you worked there. A quick call to HR will answer that question for you.

Take a look at a random LinkedIn profile, there is a good chance the person has had 4 or 5 jobs in last decade. We see orphaned RSP’s at old employers. That is they got sent paperwork when they left their employer to make a decision about their RSP or pension and then life got in the way and the paperwork never got completed. We often find out clients have 2,3 or even 4 small RSP’s at old companies that can easily be consolidated into one plan to save on fees and be focused into the current investment strategy that fits their goals.

Starting a new job

Not signing up for savings plans that the new company provides that have a matching provision or a discount to buy their stock. I am shocked by the number of people who don’t take free money. If you are going to save and the company is going to match, then that is free money. I don’t know how many times I get a new client in and I read their benefit book and they are not utilizing the matching provision of their group RSP. Most employers will match up to 3% of your salary ONLY if you put in 3%.

Not taking the time to work with the new HR team to fully understand the policy, procedures and benefits. Total compensation is not just your salary; it encompasses continuing education, conferences they will pay for you to attend, sick days, and travel expenses and much more.

Buying more than 1x’s your salary in life insurance through your companies benefit provider. This is not a glamorous topic but almost everyone has life insurance through their company.

However, we have found that the rates an individual will pay for term life if they buy it through a licensed agent is lower most times than if they buy an additional amount through their employers plan.

An additional benefit to have an individual plan is if you change employers again you don’t have to do another medical to get the insurance. That is not a big deal, unless your health changes. The savings are often 10-15% less to use an agent. Watch the nickels and the dollars will take care of them selves.

Promotion at current employer (congratulations!)

 Promotions and the raise in pay is often is of an amount that makes a difference. That is good, however I often see 100% of the pay raise get consumed into lifestyle.

Pay raises are good times to review personal debt levels and see if a plan should be implement to pay off debt in a scheduled fashion.

Not all of the pay raise should go to debt repayment mind you but enough to accelerate the debt removal.

Pay raises are great! If you earn more, the paradox is you need to save more to maintain your lifestyle when you are no longer working.

The big mistake Carol and I see are individuals and couples not having a plan or understanding what the costs of running your lifestyle in retirement.

These periods of transition during a promotion are good times to review your written financial plan to ensure you are on track and if you don’t have a written plan, it might be wise to get one.

If the promotion is to a senior position in your company, not understanding any supplemental savings the company will do for you and the tax implications that need to be planned for.

These are SOME of the mistakes we see. At the beginning I mentioned we have created a checklist and planning process to help people in periods of transition.

If you would like a copy of the checklist just PM me on LinkedIn or email me and I will send it to you.

If you have recently gone through a transition for work, I would love to hear your experiences with these topics or any others

Live well

Lance Howard CFP,CLU