Redundancy: How Long Your Buffer Lasts

Key takeaways

• Runway = accessible funds / essential monthly outgoings.
• Redraw can be reduced or frozen by the lender - offset cannot.
• Income protection typically has a waiting period before it pays.
• The liquid assets waiting period delays JobSeeker if you have savings.

How do you calculate the runway?

Two numbers, honestly assembled.

Then the denominator: essential monthly outgoings. Mortgage or rent, utilities, groceries, insurance, transport, medical, school costs, minimum debt repayments. Not the discretionary spending you would cut - the floor.

Divide the first by the second. A household with $45,000 accessible and $6,000 of essential monthly outgoings has about 7.5 months.

What are the waiting periods?

This is where plans usually go wrong, because both major income sources have a delay.

• Income protection insurance has a waiting period, commonly 30, 60 or 90 days, before benefits begin - and it generally covers illness and injury rather than redundancy. Check your policy: many people assume they are covered for job loss and are not.
• JobSeeker has a liquid assets waiting period for people with savings above a threshold, which can delay payments by weeks. There may also be an income maintenance period reflecting your redundancy and leave payout.
• Mortgage hardship arrangements take time to assess and are not instant.

The uncomfortable implication is that the household with savings waits longest for income support. That is the policy design, and planning for it is better than being surprised by it.

What should you do in the first fortnight?

1. Contact your lender before missing a payment. Hardship assistance is a right under the National Credit Code and the Banking Code, and lenders have far more options available before arrears than after. Options include a repayment pause, a period of interest-only, or a term extension.
2. Apply for income support immediately, even if a waiting period applies - the clock generally starts from when you claim.
3. Check every insurance policy for involuntary unemployment cover, including policies attached to credit cards and personal loans.
4. Cut the discretionary spending now, not in month four. Extending the runway is easiest at the start.
5. Do not touch superannuation early without advice - the eligibility criteria are narrow and the long-term cost is high.
6. Talk to a free financial counsellor through the National Debt Helpline if the position is tight.

One structural point for anyone still employed: an offset balance is a better emergency buffer than redraw, because redraw is a facility the lender can reduce or suspend, while offset funds are your own money in your own account.

Frequently asked questions

How many months of savings should I have?

Common guidance is three to six months of essential outgoings, and more where income is variable or the household depends on a single earner. Calculate it from your own essential expenses rather than a general rule.

Does income protection cover redundancy?

Usually not. Most income protection policies cover illness and injury, not job loss. Separate involuntary unemployment cover exists but is less common. Check your specific policy rather than assuming.

What is the liquid assets waiting period?

A delay before JobSeeker payments begin for people whose liquid assets exceed a threshold. It means households with savings wait longer for income support, which is worth factoring into your runway calculation.

Can I pause my mortgage if I lose my job?

You can apply for hardship assistance, and lenders have obligations under the National Credit Code and the Banking Code to consider it. Options may include a repayment pause, interest-only or a term extension. Interest generally continues to accrue, so it increases the total cost.

Related reading

• Financial Hardship: Your Rights Before You Miss a Payment
• Loan Restructuring Options Before You Miss a Payment
• Offset Account vs Redraw: The Real Difference

Sources

• Moneysmart - losing your job — ASIC
• JobSeeker Payment - waiting periods — Services Australia
• Banking Code of Practice - financial difficulty — Australian Banking Association