Redundancy payout, what to do

The day my mate Tom got made redundant from the bank he'd worked at for fourteen years, he sent me a photo of the cheque. $148,000. Then a follow-up text, two minutes later: "What do I do with this?" He wasn't asking about tax. He was asking about everything. The mortgage. The kids. The wife who'd been quietly suggesting the kitchen needed renovating. The voice in his head that said he should "make this money work" by sticking it into the share market that week. The voice in his head that said he should book a holiday because the family had been through a stressful year. The voice in his head that said, very quietly, that he didn't actually know what he wanted to do next professionally and a few months of breathing room would be useful.

The right answer was none of those, exactly, and a bit of all of them. This piece is the framework I walked Tom through that afternoon.

The tax treatment first (so you know what you actually have)

A "genuine redundancy" payment in Australia gets concessional tax treatment up to a threshold that adjusts each year. For the 2025-26 year, the tax-free amount is roughly $12,824 plus $6,412 for each completed year of service. Tom had fourteen years, so his tax-free portion was around $102,500. Anything above that, up to a separate ETP cap, is taxed at concessional rates (around 17% if he's under preservation age, lower if over). Above the ETP cap it's taxed at marginal rates.

Translation. On Tom's $148,000 gross, about $102,500 came through tax-free, the next $45,500 was taxed at 17% (so he kept about $37,800 of that), and his actual landed cash was around $140,300. Not $148,000. Always do this calculation first because the gap matters when you're deciding what the money can do.

A few notes that catch people out:

• Genuine redundancy has a specific ATO definition. If you took a voluntary package, if you're over 65, if the job was always going to end on a fixed date, you may not get the tax concession. Get the payment summary in writing and check the codes.
• Annual leave and long-service leave lump sums are paid at the same time but taxed differently. They show up on the same payslip and can be confusing.
• Unused notice period payments are usually treated as part of the ETP, not as ordinary salary.

Your accountant or the Services Australia financial information service can walk you through the specific numbers for your situation. Do that before you make any decisions.

The temptation to spend

There's a phenomenon I'd call "redundancy money brain" where the lump sum doesn't feel quite real and so the rules you'd normally apply don't quite apply. You wouldn't spend $5,000 of your normal salary on a holiday because that's three weeks of work. But $5,000 out of $140,000 sitting in the bank somehow feels different. It isn't different. It's exactly the same dollars.

The other version of this is the "make it work" impulse. You feel like the lump sum should be doing something dramatic. So you talk yourself into investing it in something punchier than your usual portfolio (crypto, a small-cap stock, a friend's business) because you don't want to "waste" the opportunity. You forget that the same money in your boring offset account is doing exactly what the rest of your savings have always done.

Both impulses come from the same root. The money feels different. So you treat it differently. Resist that. Treat it as ordinary money that happened to arrive in a lump.

The right uses, in priority order

For most blokes who have just been made redundant, the order is roughly this. Move down the list, use what each step needs, and stop when you've done enough.

• Hold three months of expenses in cash, accessible. This is your runway. You don't know how long it'll take to find the next role and you don't want to be making panicked decisions in week six because the bills are stacking up.
• Park the rest in your mortgage offset account. If you have a mortgage, this is almost always the right place. Effective return equals your home loan rate, currently around 6%, tax-free. Better than any other after-tax return you can reliably get on liquid money.
• Top up super if it makes sense. You can put up to $30,000 a year as a concessional contribution (or more with carry-forward unused cap). At 15% contributions tax versus your marginal rate (likely 32.5% or 37%), you save 17.5 to 22 cents per dollar. But the money is locked away until preservation age. Do this only if you have plenty of cash outside super already.
• Pay down high-interest debt. Credit card, personal loan, car loan if it's at a punchy rate. Easy maths.
• Then, if there's still money sitting around, invest the surplus. Index funds, your existing portfolio, whatever your standard plan is. Note the order. Investing comes after the offset, after super, after debt.

The "investing the payout" mistake

Here's the move that catches blokes who've read a couple of finance books and want to feel sophisticated. They have a mortgage. They have a redundancy payout. The mortgage is at 6%. They figure the share market historically returns 8-10% a year, so they put the payout into the share market instead of the offset because the expected return is higher.

The maths looks right and the maths is wrong. The 6% return on the offset is guaranteed and tax-free. The 8-10% return on the share market is an expected long-term average with substantial year-to-year variability and is taxed as you realise gains. After-tax, after-risk-adjustment, the offset wins almost every time for short-to-medium horizons.

There's also a softer point. You've just lost your income. Your psychological tolerance for watching a portfolio drop 20% is lower right now than it would normally be. Putting the money somewhere that can't drop is doing future-you a quiet favour.

Once your mortgage is paid down to a level you're comfortable with, sure, redirect surplus into investments. Until then, the offset is the right answer.

Runway as the prize

The single most important thing the payout buys you is time. Time to take the right next role rather than the first one. Time to retrain or pivot if you wanted to. Time to negotiate hard with the next employer because you're not desperate. The runway calculation matters more than any tax optimisation.

Tom did the maths. His monthly burn was $7,800 with the mortgage on minimum payments. He kept $40k in cash (five months of runway), put the rest into his offset, didn't touch super, and didn't book the holiday. He found a new role at month four, at slightly higher pay than the old one, because he could afford to wait for it. The kitchen reno is on the list for next year if they decide they want it.

The payout sat on the bench for a few weeks while he figured out which knife to pick up. He didn't have to swing first.

The week-one checklist

• Confirm the tax treatment in writing from your former employer's HR or payroll.
• Move the cash into a high-interest account while you decide. Don't leave it in your everyday transaction account where it'll get spent by accident.
• Calculate your monthly burn honestly. Three to six months of that is your runway buffer.
• The rest goes in the offset if you have a mortgage. If you don't, into a low-fee index fund as your standard plan.
• DO NOT invest in anything new this week. Sit on it for thirty days minimum.

The payout is not a windfall to celebrate. It's compensation for losing your job. Treat it like wages you've earned in advance and the right decisions become obvious.

Steady money, steady mind. Don't swing first.