Tuesday, 31 January 2017

Redundancy strikes again

Until yesterday DW and I were working for the same company, having both started there about 18 years ago. Then yesterday DW was 'offered' a redundancy package. Not much choice in the matter as it was presented as a fait accompli, with her current role being no longer required, and there apparently no other 'fit' found for her. At least the redundancy package was 'generous', adding up to almost 2 years worth of salary and DW was happy enough to sign and clear out her desk the same day. Personally I'm not overly impressed by the 'generosity' of the package, as the 3 weeks x 10 years of service (the maximum counted for redundancy payouts in this state) is pretty much a requirement under state laws, and the payout for unused accumulated annual and long service leave is also mandatory. And the four weeks pay in lieu of 'notice' is also fairly standard, as very few companies these days want workers to stay at work during the required 'notice' period, as they are afraid of disgruntled, laid-off employees getting up to mischief or their presence (dead man walking) being 'bad for morale'. All-in-all the only generous aspect was a couple of extra weeks payment 'ex gratia'.

As DS2 is starting school at his new 'OC' school today, DW is quite happy to be out of work and able to meet him after school. She isn't sure if she will do a TAFE course, have a go at starting up a home business, or just spend more time gardening. Whether or not she 'needs' to get another job will largely depend on whether or not the rental income from her 'off-the-plan' investment unit turns out to be sufficient to cover the interest payments on the 'portfolio loan' (against our home equity) that will be used to pay for the unit upon settlement this coming May-June. As I pay all the household bills her lack of income won't have any immediate impact. In the longer term, if she doesn't get another job she will end up not having as much as expected in her superannuation account to fund her retirement, and she also won't be able to pay down much (any) of the loan balance. If Sydney real estate prices continue to rise over the next decade or so that won't be much of an issue, but if there is a slump in prices she might end up owning a home unit that is worth less than her mortgage...

Of course DW getting laid off immediately made me wonder how secure my own position at the company is - but there isn't really much point worrying about it unless/until it happens. At the moment my role seems fairly secure, but that can easily change, often as a result of decisions made 'behind closed doors' that one is blissfully unaware of until the axe falls. It did prompt me to do a quick spreadsheet model of how I might be tracking with regards to funding my retirement if I was laid off tomorrow, and comparing it with the likely situation if I was laid of next year, or the year after, and so one...

It turns out that, making some reasonable assumptions regarding ongoing contributions rates while I'm still working, and the likely future rates of taxation and earnings on our superannuation investments (I've taken the average rate of return for the past ten years as a 'guesstimate' of possible future returns, given that this is lower than average rate of return for the past three years, or over the entire period of available data), I could 'retire' tomorrow and get a sustainable retirement income of around 80% of my current 'take-home pay' if I sold up my stock portfolio, paid off the margin loans, and added the net amount to my current superannuation balance. This 'sustainable' model assumed that I had to re-contribute around 2% of the fund value every year to allow for inflation, and that the balance of my superannuation account would be run down until there was no residual balance at age 100. (While that may be an optimistic lifespan, my paternal grandparents both lived until 94, and my parents are both alive and well and in their 80s). It also assumed a low rate of tax on superannuation 'pension' payments, which of course is subject to legislative risk.

If I do manage to keep my job for at least another couple of years my sustainable retirement income rises to around 100% of my current 'take-home' pay rate, and working any longer would mean that either a) I can fund a higher rate of 'pension' payments out of my superannuation during retirement, or b) I will be likely to end up with some residual balance, or c) my desired rate of pension will be sustainable even if investment returns are worse than expected, or if there are a couple of years of poor investment performance immediately after I 'retire'.

Of course even if I get laid off tomorrow I could probably find some gainful employment until my intended retirement age - either at some other job (probably involving more work for less pay), or possibly by getting qualified as a financial planner and having a go at starting my own financial planning business...

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