We’ve already seen a raft of firms making redundancy announcements and as a result, we’ve started to see an increase in people seeking retirement advice who have been made redundant, or are expecting to be in the near future.

For many, a one-off payment like this can be an opportunity to change or accelerate their retirement plans.

Early retirement can be the dream – something many plan for and work hard towards throughout their working lives to achieve. However, it can also be daunting when it happens unexpectedly.

The redundancy payment can unlock options and opportunities you previously hadn’t considered. For many it could mean stopping work earlier than they planned.

There are several things to consider when deciding what your next step is:

1) Don’t panic

Choosing when to retire is one of the biggest decisions you’ll make emotionally and financially but don’t let it overwhelm you.

If you’re not sure on the best course of action, speaking to a professional could give you peace of mind. A financial planner can give you advice on your finances. They can bring to life your different options and provide you with a tailored plan, designed to meet your individual needs and to set you up for whatever comes next.

They can also help to answer all those big questions you might have. For example:

• ‘Will I have enough to live on?’
• ‘Will I still be able to support my family?’
• ‘How can I access my money?’
• ‘What’s the best way to use my redundancy payment?’
• ‘How can I minimise tax?’

2) Consider what’s important to you

A redundancy often means an unexpected and significant change to your life and future plans.  So, before you start planning your finances, take the time to think about what’s important to you and what you want to do next.

These are the types of things you might want to think about: How you want to spend your time, will you continue working? Do you want to keep working? Would you like a career change?  Would you like to reduce your hours and phase your retirement? Would you like to stop work completely?

You don’t need to make all these decisions at once. Your first decision might be just to have the financial freedom to take the time to decide your next step.

3) Think about how much you’ll actually need in retirement

It’s a good idea to start by estimating your annual cost of living. Future expenses are hard to predict, but to get a ballpark figure, take your current outgoings and then subtract any expenses you expect to no longer have (e.g. a mortgage) and add in any new ones (e.g. travel plans or a dream car).

To compare that against how much you might need, The Pensions and Lifetime Savings Association (PLSA) has developed a handy Retirement Living Standards resource that gives you an idea of the savings you might need.

Alternatively, a financial adviser can work with you to calculate how much money you’re likely to need for the whole of your retirement.

4) Take stock

The most important thing in retirement is planning and establishing if you have enough saved to last and pay for the retirement you want.

You’re likely to have a ‘main’ pension pot, for example a workplace pension through your employer. You can normally access these pension savings from age 55 (57 from the year 2028).

Most people are also entitled to the State Pension, a regular payment from the government that can be claimed from age 65, rising to age 66 from October 2020, and 67 between 2026 and 2028. The government  has a very easy to use State Pension age calculator which gives you the date you’ll be eligible and how much you can expect to receive.

You may also have other forms of income from previous pensions, or perhaps investments in an ISA or even an inheritance. If you think you might have a few old pensions from previous employers, you can use the government’s online Pension Tracing Service to track these down.

Once you’ve added up your various sources of income, there are lots of online pension calculators to give an estimate of the income you could expect. For example. Standard Life’s Retirement Advice can help you see if you’re saving enough and offers an estimate of what you could have in the future.

5) How to maximise your redundancy pay

If you have been made redundant, you may have received a redundancy package.

Redundancy pay is compensation for your job loss and qualifies for special tax treatment, with the first £30,000 payable tax free.

If you receive a payment of more than £30,000 or receive a payment in lieu of notice, this would normally be subject to tax at your marginal rate. You may be able to avoid paying tax on this amount by paying it into a pension instead.

For example, if you are a member of your employer’s pension scheme, you could ask your employer to pay the excess above £30,000 directly into your pension. The boost to your pension could be worth nearly double the net amount you’d get if you took the bonus as cash.

It will also give you more tax-efficient planning options for the future – a well-earned and perfectly timed extra payment to your pension pot just before you head into retirement.

John Tait is planning specialist at Retirement Advice from Standard Life