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Reducing risk in times of change

The Reminder is making its archives back to 2003 available on our website. Please note that, due to technical limitations, archive articles are presented without the usual formatting.

The Reminder is making its archives back to 2003 available on our website. Please note that, due to technical limitations, archive articles are presented without the usual formatting.

We live in an age of change, especially when it comes to our careers. Worker mobility, corporate transfers, restructuring and budget cutbacks, have all contributed to a new employment environment. In today's economy, you can be among the best in your field and still lose your job through no fault of your own. Whether you're exploring new career opportunities, or deciding how to invest your money, it is important not to make rash decisions. What you do with your pension plan and how you handle the cash severance payment you receive will have a financial impact in the short term and into your retirement. If you receive a lump-sum payment as part of a severance package, your settlement may be at risk unless you take appropriate steps. To avoid the risk of spending your severance all at once, prepare a list of your priorities and decide with your family how the money should be used, in the short and long term. If you take a cash lump sum, you may potentially be subject to a higher rate of taxation. Consider investing a part or all of your payment in an RRSP to shelter it from tax while you establish your priorities. There are special tax rules that may help you put additional amounts into your RRSP over and above your normal contribution limit. When planning your investment strategy, consider the following options: Short-term income: Liquid assets that you can quickly convert to cash, include: Retirement Savings Deposits, short-term Guaranteed Investment Certificates (GICs) or money market mutual funds. Long-term income: To ensure a steady income flow for a lengthy period, consider a diversified portfolio that includes GICs and mutual funds. Tax-sheltered growth: Maximize the return on your retirement allowance by investing directly in an RRSP or, if you need income, a retirement income option such as an RRIF or a fixed-term annuity. Business development: If you plan to start your own business, for the short-term invest some money in low risk and highly liquid securities, like short-term GICs and money market mutual funds. Consider four options regarding your pension plan: See 'Plan' P.# Con't from P.# 1. Remain in the company pension plan. You will receive a lifetime pension income without having to manage the funds. 2. Transfer the amount to a new employer's pension plan. Limitations may apply based on the new employer's willingness to assume the pension liability. 3. Purchase a deferred annuity. This income should be compared with the projected income provided by the other available options. 4. Transfer the pension plan to a Locked-in RSP or Locked-in Retirement Account (LIRA). You retain control of this asset, which may also become part of your estate. One additional benefit of transferring your pension to a Locked-in RSP or LIRA or to your new employer, is an increase in RRSP contribution room, referred to as a Pension Adjustment Reversal (PAR). Making well-informed investing decisions is key to peace of mind and financial security. Get professional advice, consider your severance and pension options in the context of your overall financial strategy, and discuss your plans with your family.

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