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Peak Earnings Years Are Your 50’s - Parents Maybe, You… Not So Much.

Glenn Brown

A myth young professionals face from family, peers, marketing and even financial professionals is that your peak earning years are in your 50’s. There’s trouble with this assumption in a financial plan. Let me explain. 
Do you make over $162,051 a year? 
If you’re age 42, then congratulations you’re a Top 10% earner in the United States per the monthly Current Population Survey (CPS), conducted jointly by the U.S. Census Bureau and the Bureau of Labor Statistics.
Given your earnings at 32, you may believe a similar trajectory of promotions and compensation will occur over the next 10 years into your “peak earning years”.  
Let’s find age 52 to see the Top 10% earn over… $150,222. 
Wait a minute, must be a mistake.
How about age 51? 
Look, if you’re head of a division or executive entering your 50’s, you’re exceeding. But by age 55 or older, you’re also in the ~1-3% of workforce at that age in those positions. 
As I explain to new clients in their late 30’s and 40’s, ageism is real in corporate America. Some dismiss it, so I ask, “How many peers on your level or above are in their 50’s?” They answer, “There are some”. Next I ask “How about over 55?”. It’s then that I get a pause with realization. 
Several things can be done, start with 3 foundational steps. 
Act As If. Apologies if you hear Ben Affleck’s voice, but act as if you’re at peak earnings today. What would you be doing differently? Do you save more? Do you invest differently? Is there a career change? Would one of you in the household take a risk to work for a start-up, start a small business or become self-employed? How are your future income streams?
Budget. I know, it’s a dirty word. Especially in dual income households making $250-400K. Yes, we all need our “play hard” moments and/or family experiences, but has a once or twice a year indulgence become a monthly habit because you can? 
Effective budgets are not envelopes, obsessive tracking or family meetings, but running a Cash Flow Analysis and review every 6-12 months to see if the projections are your reality. A proper analysis should show projected net free cash flow after all categorized expenses, taxes, and automatic savings allocations. 
Savings Prioritization. In conjunction with your Cash Flow Analysis, you should have a clear rationale of where your savings are going. There is balancing between what’s for today, the next 1-2 years and for the future unknown. 
Is it 401k, HSA or FSA, 529 plans, IRAs, Roth, brokerage, bank, down payment, emergency or an upcoming experience? Defined percentages or amounts are best, however it’s more important to understand the purpose for prioritization and impact of your choices.  
In closing, if you’ve done a financial plan see if the income assumptions are only adjusting for inflation and not bumping up in your 50’s or worse, remaining constant until 65. If you haven’t, consider a Certified Financial Planner that can help you build, execute and monitor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Glenn Brown is a Holliston resident and owner of PlanDynamic, LLC, He is a fee-only Certified Financial Planner™ helping motivated people take control of their planning and investing, so they can balance kids, aging parents and financial independence.
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