Prepare for the peak

By James Dolan | August 5, 2014 | Last updated on August 5, 2014
3 min read

If you’re like most Canadians, you’ve probably been working for quite some time—in all likelihood, since your early 20s. And, if you were like most people, you probably didn’t earn much in your 20s. That first job (maybe the first few) likely saw you just scraping by.

But, now that you’ve been in the workforce for a while, your finances likely are more stable. You’ve had a few raises, and a promotion or two. And while nothing is ever certain, your career is on the right track, and your financial situation is steadily improving.

Congratulations: you’ve reached your peak earnings years.

What you do during this time is of utmost importance—to you, and your ability to secure your long-term financial future. Simply put, these are the years when you should be making your biggest strides to accomplishing your financial and life goals.

So where do you start? Here are some ideas:

Establishing your peak earning priorities

Part of what makes your peak earnings years challenging is that they come at a time of competing priorities.

When you entered your peak earnings years, your focus was likely still on the foundations of personal finance: paying off your education, maintaining your credit rating, securing the best place to live, paying for family needs, and advancing in your career. As you exit these years, your focus will be on retirement.

What happens between those two points—your ability to select from various financial priorities and apply yourself (and your new-found earnings power) to accomplishing them—will be critical to your long-term financial success.

You’ll have to determine which among several priorities to turn your attention to:

Paying off debt

Canadian households now owe almost $1.65 for every dollar of after-tax income they earn, finds StatsCan. Now that you’re in your peak earnings years, you can likely devote extra dollars to paying down mortgage principal and getting out from under the spectre of debt sooner.

Building a retirement portfolio

Your peak earnings years are a time when you can devote an ever-increasing percentage of your income to retirement savings. By investing now, you can maximize your compounding power and make significant progress toward retirement savings goals.

Supporting kids through post-secondary education (and beyond)

It takes longer for young people to become financially independent these days. Today, young people often require help with tuition, and several years of financial support (either direct or a few parental subsidies) before getting established in their careers.

Determining “next steps” for your career

These are the years when salary increases start to plateau. Will you ease out of your career and retire early? Strike out on your own to become a consultant? Start your own business? Each of these choices has important implications for your finances.

Caring for aging parents

Parents take care of children—but those who are part of this sandwich generation may also find themselves supporting aging parents, either with time or money.

Playing catch-up with your savings

Statistics Canada finds the average Canadian saves only 4% of his or her income each year. If you’re part of this group, your peak earnings years are the time to correct that oversight.

Maximize unused RRSP contributions

According to Statistics Canada, only 24% of Canadians contributed to their RRSPs in 2011. And as of that year, they’d accumulated $683.6 billion in unused RRSP contribution room. With your added earnings, now is the time to get those contributions dealt with.

Open a TFSA

A TFSA lets you earn investment income tax-free for as long as funds remain within the account. That makes it an excellent way to save for long and short-term goals. As of 2015, you could contribute $10,000 per year.

Take full advantage of employer-sponsored retirement plans

If you’re fortunate enough to belong to an employer-sponsored retirement plan (a defined-benefit or defined-contribution pension, or a group RRSP), use your extra earnings to make the maximum allowable contributions. In many cases, your employer will match your contribution up to a certain point—that’s a quick and easy way to earn a generous return on your savings.

James Dolan