The pluses and pitfalls of peak earnings

Now is the time to secure your long-term financial future

You’ve worked hard for 20 or so years and now you’re very likely right in your earnings sweet spot: these are your peak earnings years. Not only has your income increased, your finances are steadily improving. Now is the time to secure your long-term financial future – and, even though it’s somewhere down the road, the retirement of your dreams – by making the most of your peak earnings years.

Here are some tips for doing just that.

Pay off debt: Apply some of your “extra money” to paying down your mortgage and other debts. Becoming debt free is good.

Build for retirement: Develop an effective investment portfolio and apply an ever-increasing amount of your income to your portfolio and other vehicles for retirement savings, such as registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs). By investing early in RRSPs, for example, you maximize the magic of compounding – and by making your maximum RRSP contribution each year, you’ll also maximize your tax savings. And speaking of savings: Statistics Canada finds that one in three Canadian adults are not preparing financially for retirement. If that’s you, now is the time to improve your savings strategy.

Identify your priorities: Your income has never been this good and that can get you thinking about realizing some dreams – like buying a larger home or purchasing a cottage, a new vehicle or a boat – but beware of spending too much now at the expense of your retirement years. Instead of rushing to realize all your dreams at once, identify your priorities and budget realistically to achieve them without compromising your future.

Support your kids – economically: It’s tougher these days for young people to become financially independent. You’ll probably have to help your kids with tuition and other forms of financial support, perhaps for several years beyond college or university, while they get established in their careers. A registered education savings plan (RESP) is a good way to rein in the rising costs of a post-secondary education. And investing a few dollars each earnings period in a fund for “kids’ support” is a good idea, too.

Support your parents – maybe: You’re a member of the “sandwich generation” and, as such, you could find yourself not only supporting your kids but also aging parents. Include that possibility in your budgeting decisions.

Plan to retire: You may intend to work well beyond the “usual” age for retirement or, like a growing number of Canadians, you may be aiming at early retirement. Either way, make sure you have a plan in place that will get you there in financial comfort.

And one final tip: To make the most of your peak earning years (and all your other years) talk to a professional advisor about the best financial plan for your situation. Jeff Somers, BA, RRC, CFP works at Investors Group in Charlottetown. This column, written and published by Investors Group Financial Services Inc. and Investors Group Securities Inc. presents general information only and is not a solicitation to buy or sell any investments. Contact your own adviser for specific advice about your circumstances.