Pitfalls to Avoid in Your Peak Earning Years

The peak earning years usually happen between the ages of 45-55 when your income continues to rise while your debt and expenses decline.  The combination can give you the means to reach many of your financial goals and ultimately financial freedom.

However, if you fail to strengthen your financial position during these years, you could put your financial future at risk.  Here are five pitfalls to avoid during your peak earning years:

Playing it safe with your investment portfolio – During your peak earning years you should be focusing on growing your portfolio, especially if you have a defined pension plan, intent to continue working part time or have an alternative income source such as rental income.  Playing it safe in low interest GICs and Canada Savings Bonds could leave you short and not enough to fund your future goals.

Not paying off debt – Being debt free at retirement opens up many possibilities that wouldn’t be available if you were still paying off the mortgage or other consumer debt.  Now would be the time to use your increased earnings to aggressively pay off debts, allowing you to enter your pre-retirement years stress free and able to concentrate on the lifestyle you want to create.

Focusing too much on the wish list – You finally made it, your income is the highest it has ever been, so why not enjoy it?  That’s fine, but be careful; there is a point where spending too much will impair your ability to save for the future.  What is really important to you?  Prioritize, instead of trying to have it all concentrate on what you really want; whether it is traveling, buying your dream car or doing a home renovation.

Not taking advantage of tax sheltered investment accounts - Most people have unused RRSP contribution room and have yet to open a TFSA.  Now that you are in your peak earning years you have little excuse not to max out your RRSP, once that is done; open a TFSA and top that out as well.  Making it a priority to max out these contributions while you have the money will put you in a much better financial position and enable you to accomplish all of your lifestyle goals.

Having your heart set on an early retirement – When I ask people when they wish to retire the most common answer is ‘tomorrow’.  Early retirement takes a lot of planning; but if this is your dream it is time to start saving and investing rigorously.  As always speak with a professional like myself on how feasible the plan really is; before you hand in your resignation.

Do you make a lot of money but not sure where it all goes?  Your peak earning years shouldn’t be wasted, it is time to take advantage of your higher income, manage it wisely and accomplish your lifestyle goals.  Give me a call and we will restructure your household finances, run it like a business and make it profitable.

 

Have a great weekend,

Tracey

Source:  Original article posted on advisor.ca by staff, 08-05-14