Personal Finance

Advice on what to do with a severence package

  • Last Updated:
  • Apr 29th, 2018 9:48 pm
Newbie
Apr 26, 2018
1 posts

Advice on what to do with a severence package

Hi all,

So currently taking a buy out from my current job and looking for the best way to invest and manage this money. I do not plan to take any time off and will jump into a new job. So would love to use this money for future retirement, etc.

Any input would be appreciated.

Thanks.
12 replies
Jr. Member
Jan 14, 2013
123 posts
134 upvotes
Kitchener
If it were me,

1 RRSP - space available ETF portfolio. with return generated:
2 Pay down debt or further RRSP
3 TFSA - space available ETF portfolio
4A cash account - ETF or dividend portfolio, Canadian content
4B Rental real estate if you are so inclined.

It's really skinning and cats. Lots of ways to do it. This would work for me, any of these steps accelerate your retirement plan.
Deal Guru
User avatar
Mar 23, 2008
13006 posts
10009 upvotes
Edmonton
Lottery tickets. Wait for the $60M with lots of bonus numbers, and go all in.

C
Sr. Member
User avatar
Dec 21, 2007
825 posts
277 upvotes
Scarborough
First thing should be to calculate what tax you owe on the lump sum, then put that in something like a high interest savings account. Last thing you want to do is spend or invest it all, end up down, then have to pay taxes next year.
I am the Stig's brother's cousin's friend's former roommate.
Deal Addict
Sep 11, 2006
2304 posts
950 upvotes
I had a manager that spent it on a vacation and bought himself a bunch of new tech. After the vacation he came back and was hired at the same salary at a competitor.
Deal Expert
Aug 22, 2011
41788 posts
30051 upvotes
Center of Universe
Treat it as a bonus...what do you generally do with your bonuses?
Deal Addict
Jun 10, 2013
3914 posts
2529 upvotes
GrandTheftAutopolis
RRSP would be contingent upon the OPs annual salary - high salary and ability to receive another high salary job for sure, if not then TFSA
Also, do you have a 3-6 month security cushion? If not then that should be your emergency reserve (which can be held in a TFSA but an RRSP will generate tax consequences if you ever want to withdraw from it). Reserves are best held in high interest bearing accounts like EQ Bank Tangerine Simplii Oaken.

If you have a reserve then you can just invest it in low MER global stock or Canadian bond indexes (like XAW/VFV for stocks, and ZAG for bonds for instance) using your banks discount broker or Questrade for cheap. You can use a couch potato portfolio using ETFs + your discount broker http://canadiancouchpotato.com/wp-conte ... s-2017.pdf or TD e-Funds http://canadiancouchpotato.com/wp-conte ... s-2017.pdf

If you have less than 7 figures in investable networth, it's probably not useful to get too complicated or put too much time in it. A couch potato should do, just choose your risk accordingly (bonds 'safer', stocks more gains and more risk (personally I'd be 100% stocks if I was young and had a smaller networth)) but of course I'd have my 6 month - 1 year reserve (I'm more paranoid when it comes to life vs. markets)
Deal Addict
Jun 10, 2013
3914 posts
2529 upvotes
GrandTheftAutopolis
Oh yeah, forgot, kill off any high-interest debt first...
Deal Fanatic
User avatar
Jan 27, 2007
5116 posts
984 upvotes
T.
It may be considered a retiring allowance. If so, you should be able to transfer directly to an rrsp to avoid tax withholding AND it impacting your rrsp limit. Even if it is a non-eligible RA, you should still be able to tranfer tax free subject to your rrsp limit.

I would suggest deferring paying tax by using the suggestion above EXCEPT if you have high interest debt, like a LOC or Credit card.
Deal Addict
Jun 10, 2013
3914 posts
2529 upvotes
GrandTheftAutopolis
Hopefully you have RRSP room...I'll have some tax trouble once I divest a db pension, I have a tendency to max my shelters on my own but I forgot to consider that an RRSP is good strategic space for windfalls...
Deal Expert
User avatar
Jan 27, 2004
52935 posts
18144 upvotes
ONTARIO
Overall what is your financial situation like?

Do you have DEBT?
Do you have RSP? How much?
Whats your tax bracket? What Industry? Is it expected you'll find the same or better salary? Or did you just kinda have a good job @ that time, and you expect lower b/c of the job market?
Any TFSA? How much room?
What is your 5 year plan? e.g. Getting married, having baby, retiring, young and just saving/living it up. single or life etc etc.
Any big purchases you foresee?
Do you own your home or rent?

Answer all these in detail and we can make a thorough financial plan or suggestion for you!

B/c imagine if you're a hot shot who is well off... You expect to earn a lot. RSP tax deferal might be benificial... OR what if you're saving for a down payment? TFSA might be the best then . . .
Deal Addict
Dec 4, 2016
2011 posts
1030 upvotes
Hobotrader wrote: Hopefully you have RRSP room...I'll have some tax trouble once I divest a db pension, I have a tendency to max my shelters on my own but I forgot to consider that an RRSP is good strategic space for windfalls...
DB pension should already have rrsp room accounted for. Didn't you file pension adjustment for your rrsp room? It's the case for my dpsp.

Top