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If you leave a job sooner than you anticipated, all is not lost: There are steps you can take to help regain control of your future, utilize your resources, and create a plan that takes your new situation into account.
1. Create a New Plan for Your Future.
A sudden or unexpected departure from an employer has many different ramifications (e.g., social, emotional, lifestyle), but the financial impact can be the most significant. Once you leave a job — or retire earlier than expected — you’ll need a new strategy for covering your living expenses.
Your plan will depend on your specific circumstances, but here are some factors to consider:
Filling the income gap: It is likely your plan will focus primarily on meeting your financial needs, whether through employment insurance (EI) benefits, savings or a severance payment. If you lost your job due to layoffs or a shortage of work, you can apply for EI benefits as soon as you stop working. In addition to EI benefits, you could use private savings, an emergency fund or a combination of both to fill the gap.
Adjusting your living situation: A smaller home may have lower rent or mortgage payments, maintenance fees and utility costs, thereby reducing your cost of living over time. If you own a home, you might consider downsizing your residence or converting the equity in your home into cash to meet financial needs.
Finding new work: Continuing to work in some capacity — for example, in a different kind of job, a new career, moving to part-time or seasonal work, or exploring self-employment or entrepreneurship — may help you to pay your living expenses. If there is an occupation or vocation you’ve always been interested in but haven’t pursued, now might be the time.
Tapping other financial resources: Finally, you might have other private savings that can help meet your financial needs. These could include a Registered Retirement Savings Plan (RRSP), a Tax-Free Savings Account (TFSA), or unregistered savings or investment accounts. You might also have additional assets on your personal balance sheet, such as a principal or secondary residence (a summer home or cottage) that could, if necessary, be used to provide financial resources.
2. Is Early Retirement an Option?
Early retirement could be an option, depending on your age and the circumstances involved in your unexpected departure from your job. The good news is that if you have lived and worked in Canada prior to retirement, it’s likely you have multiple sources of guaranteed retirement income that will kick in once you reach the age of eligibility. These can include the following:
The Canada or Quebec Pension Plan (CPP or QPP) can be accessed as early as age 60 (and the amounts go up if you delay the age at which you begin accepting payments). The income you’ll receive is based on the contributions you’ve made during your working life. To learn more, consult the Government of Canada’s website or the Government of Quebec’s website, respectively.
The Old Age Security (OAS) or Guaranteed Income Supplement (GIS) programs may boost your finances in retirement, once you hit age 65. How much you’ll get is based on how long you’ve lived in Canada, your other income, and whether you are married or single. To calculate how much OAS and GIS you might receive in retirement, use the Government of Canada’s web resources, which will help you understand your eligibility and estimate the amounts.
An employer-sponsored pension plan will provide either a monthly cheque in retirement (if yours is a defined-benefit pension plan) or a tax-deferred account from which you can withdraw to meet your needs (if yours is a defined-contribution pension plan).
A defined-benefit pension plan can sometimes also be converted to a lump sum if you leave your employer before reaching age 60 or 65 or before meeting the conditions for a full retirement pension. The age at which you can start to receive payments or access the funds, and whether or not the income you receive from a plan is adjusted for inflation over time, will depend on the rules for your plan; so a call to your pension provider would be in order to learn more.
All in all, your potential sources of income to support your retirement, even if retirement comes earlier than you expected, could be more than you had initially thought. And because some of these potential income streams can be “turned on” at varying ages, you may be able to draw on private savings first, then CPP or QPP (starting at age 60), followed by pension income, OAS and GIS (at age 65).
What’s the Right Path for You?
Losing a job is a major life change, and many people don’t have the option of taking an early retirement. You can regain control of your circumstances by reviewing all your options for generating income, then determining the best plan for you.
In creating your own plan, keep in mind that you may be able to mix and match options over time as your needs, situation and preferences change. And if the range of decisions sounds confusing and/or overwhelming, simply getting your options down on paper or discussing them with a trusted friend or professional advisor can help.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.