Planner: Peak earning years priority list

Your peak earnings years are the time to accomplish a number of important financial and life goals. But that brings up an important question: what goals need to be accomplished first?

While the answer depends on individual circumstances, here are some general guidelines.

TOP PRIORITIES

Catch up on unused RRSP contribution room

Now that you’re earning more, it’s time to catch up on unused RRSP contribution room. Once that’s done, you can work on paying back any withdrawals you made from your RRSP under the Home Buyer’s Plan or similar allowances.

(Re)consider your portfolio allocation

For the majority of investors, the peak earnings portfolio should be solidly focused on growth—conservative, long-term growth—but growth just the same. If your portfolio is heavily weighted to income-generating assets, or low-yielding, guaranteed investments, now’s the time to reconsider that allocation.

Bulk up RESPs for the kids (or possibly your grandkids)

Helping kids with post-secondary education costs is a significant life goal for most Canadian parents. The easiest time to do it is during your peak earnings years. If you haven’t done so already, make sure to start an RESP. Such accounts offer tax-free compounding until withdrawal, and will generate a matching 20% contribution from the federal government up to a set yearly maximum. High-income earners may also want to consider an In-Trust For (ITF) account, which offers more flexibility than a traditional RESP, although without the government contribution.

Write (or revise) your will

Your peak earnings years are a time of rapid asset accumulation and shifting financial priorities. Such change can often make a will out-of-date. If it’s been awhile since you’ve reviewed your will—or if you haven’t written one—make it a top priority.

SECONDARY PRIORITIES

Get aggressive with your mortgage

Receive a bonus this year? Expecting a big tax refund? Maybe you inherited some money? If you’ve fully funded your RRSP and are looking for somewhere to put money, making an additional lump sum payment on your mortgage is often a good idea.

Open a TFSA

Alternatively, if your mortgage is small and you’re fully caught up with your RRSP contribution room, it’s a good time to open a TFSA. No, you won’t get a tax refund for contributing, but your investments will grow free of tax as long as they remain within the account, and you’re never forced to withdraw them, as you will be with an RRSP/RRIF.

Build up your emergency fund

A rainy day fund, for unexpected expenses, is a fundamental goal of personal finance. If you don’t have one (or if you rely on your line-of-credit instead), now is the time to build one. Keep it in an easily accessible account: a high-interest savings account or money market mutual fund. Avoid locked-in GICs and similar investments.

TERTIARY PRIORITIES

Open a non-registered account

If you’ve topped-up your RRSP, paid down (or off) your mortgage, and have set up a TFSA, you might want to look into starting a non-registered investment account. You’ll have to pay tax on any capital gains, dividends, or interest you earn, but you’ll also be able to claim capital losses in the event an investment doesn’t work out as planned.

Set yourself up for early retirement

Ever dream about early retirement? If so, do the math on some early retirement scenarios. Investigate what kinds of benefits or pension you could expect if you do retire early. And ask yourself whether it makes sense to work part time or set up as a consultant to ease into retirement rather than quit work cold turkey.

Consider business succession

Business owners should start succession planning early, even if a transition is years away. If you’re thinking of passing the company on, identify a potential successor—and determine how family members will be involved (if at all). If you’re considering a sale, now is the time to make the business attractive to buyers by having your books audited, reducing costs, and bringing in key staff to take your place.