Happy birthday: here’s your guide to key financial milestones

Birthdays are often a time to reflect on where you’ve been… and where you’re headed.

And, yes—they’re also about celebrating (bring on the cake).

Afterall, successfully completing another 365-day trip around the sun is definitely cause for celebration. As is making it through the 10 long months of every school year (way to go, rockstar).

However, birthdays are also the perfect time to take stock of your financial situation.

Because your priorities at 25 will obviously look quite different come age 55.

For example, early in your career, you may be navigating student debt, occasional supply teaching assignments, and a salary that’s still climbing the pay grid.

Then, as further candles get added to your cake—you may find yourself buying a home, raising a family, and working toward other specific goals to build the kind of future you want.

No matter how many candles you’re blowing out this year, here are some key financial milestones worth aiming for at every stage of your journey.

Jump to:

• IN YOUR 20s: establish control and plant seeds for the future
• IN YOUR 30s: accelerate wealth as income rises
• IN YOUR 40s: maximize assets and eliminate bad debt
• IN YOUR 50s: target financial freedom and pension integration
• IN YOUR 60s: complete a smooth transition into retirement
• IN YOUR 70s (and beyond): protect, simplify, and leave a legacy

IN YOUR 20s: establish control and plant seeds for the future

There’s no doubt that being a 20-something in the 21^st century can feel financially challenging.

It can seem especially steep when you’re at the bottom of the grid, working either occasional assignments, long-term occasional (LTO) positions or your first permanent role—all while carrying student debt and adjusting to the realities of adult life.

And, although retirement may seem like a lifetime away, the financial decisions you make at this juncture can have a long-lasting impact on your future.

Besides, your 20s will go by faster than you think (just ask any one of your retired peers).

Key financial milestones:

• Create a budget: Budgeting establishes important parameters when it comes to the money you spend and save—the sooner you follow one, the stronger your financial foundation will be.
• Eliminate high-interest debt: Work toward paying off credit card balances and student/private loans before aggressively investing (at this point, time is on your side).
• Build an emergency fund: Accumulate three months of living costs to get through the unpaid summer months (if you’re occasional/contract)—or to cover a sudden expense or job loss.
• Save for a down payment: Lay the groundwork for a future first-time home purchase by utilizing tax-free growth tools (see below).

Investment and pay grid strategies:

• Prioritize a TFSA over a RRSP: In your 20s, your marginal tax bracket is the lowest it will ever be—meaning the tax-deduction value of any Registered Retirement Savings Plan contributions would also be minimal. That’s why maximizing your Tax-Free Savings Account in your 20s makes more sense (especially since you’re already saving for retirement through your pension contributions).
• Utilize the FHSA: If buying a home in the near future is a goal, be sure to maximize the First Home Savings Account as soon as possible. It gives you a tax deduction now and withdrawals are tax-free when purchasing your first property.
• Track your grid movement: Use your birthday to audit your Qualification Evaluation Council of Ontario (QECO) or OSSTF certification rating. Ensure you are taking the Additional Qualifications (AQ) courses needed to climb to Category A4/4 as fast as possible.

IN YOUR 30s: accelerate wealth as income rises

By the time you’re blowing out 30+ candles, you are likely moving into permanent positions and climbing the pay grid—all while navigating all kinds of life changes, events, and goals (for some this might include marriage/long-term partnership, buying a home, or starting a family).

Key financial milestones:

• Secure your first home: Utilize accumulated FHSA and TFSA savings toward a down payment
• Manage lifestyle creep: As your income rises with every step up the pay grid, automatically divert 50% of every raise into investments before you get used to spending it. See how your savings can stack up over time with our new Investment Growth Calculator.
• Protect your family: Establish a will and estate plan as your income and family grows.

Investment and debt strategies:

• Pivot to the RRSP: Now that you are moving up the pay grid (and your tax bracket has jumped), RRSP contributions become more beneficial. You could even reinvest any tax refund generated from RRSP contributions into your TFSA.
• Open a Registered Education Savings Plan (RESP): If you have children, contribute up to $2,500 annually per child to leverage the Canada Education Savings Grant (CESG). This earns you a 20% government match, providing up to $500 per child each year.
• Start aggressively pay down non-mortgage debt: The more you can shrink student loans, car financing, and other non-mortgage debt by the end of this decade, the stronger you’ll be positioning yourself financially as you enter your 40s and beyond.

IN YOUR 40s: maximize assets and eliminate bad debt

This decade typically represents your peak earning years.

That’s because by now, you are more than likely to be at the top of the pay grid and potentially taking on leadership roles (such as Department Head, Consultant, or Vice-Principal).

Key financial milestones:

• Achieve zero ‘bad’ debt: Ensure all consumer debt, lines of credit, and vehicle loans are entirely eradicated. Ideally, your only debt at this point should be your mortgage.
• Maximize your wealth strategy: Utilize your birthday as a yearly reminder to have follow-up discussions with your financial advisor when it comes to your overall financial growth (such as paying down debt faster or increasing investment contributions).
• Ensure your financial plan is on track: As life moves and evolves into your 40s, you might find yourself thinking about taking a deferred salary leave—or planning the wedding of a grown child. Whatever situation you find yourself planning for, now’s the time to start financially preparing—or making any necessary adjustments (while you still have the benefit of time on your side).
• Review your pension projections: As you reach the later part of this decade, the closer you’ll be inching toward your 85/90 Factor. Log in to your pension portal to check your qualifying years of service, pension estimate, and retirement eligibility date (use our pension income gap calculator to ensure you’re on track to enjoy the retirement lifestyle you want).

Investment and educator-specific strategies:

• Balance your registered accounts: Continue using RRSP contributions to lower your taxable income, while leveraging your TFSA to create future tax-free income flexibility. Using both strategically can help improve your financial plan for retirement (over and above your pension).
• Evaluate buybacks: If you took an unpaid leave of absence earlier in your career (e.g., for parental or educational leave), request a quote from your pension provider to buy back that service. Doing this earlier is usually much cheaper than waiting until you approach retirement.

IN YOUR 50s: target financial freedom and pension integration

Since education members tend to retire earlier than the average Canadian (age 58 vs. 65)—your nifty 50s bring the highly-anticipated 85/90 Factor for an unreduced pension. With less time to course correct your financial plan for retirement, this point in your life requires precise coordination between your investments and your pension structure.

Key financial milestones:

• Become entirely debt-free: Target complete elimination of your mortgage before you reach your retirement date (entering retirement with absolutely zero debt dramatically reduces the monthly income you need to not just survive, but live comfortably).
• Run a retirement readiness audit: Transition your investment portfolio from aggressive growth to wealth preservation (an Educators financial advisor can help you with that).
• Formally apply for your pension: Coordinate with your school board and OTPP/OMERS up to four months prior to your chosen retirement date. It is encouraged to apply as soon as possible within that timeframe, as it takes up to two weeks to process (delayed applications processed after retirement will be paid retroactively, with interest). Also, be sure to coordinate with your school board and union representative for information pertaining to your specific collective agreement.
• Secure retiree health benefits: Ensure you enroll in extended health and dental coverage tailored for retired educators, such as plans offered by Entente (formerly Registered Teachers of Ontario) or your specific union’s retiree wing.

Investment and pension strategy:

• Shift toward TFSA compilation: Because your pension will be fully taxable when you retire, a massive RRSP can sometimes create a tax trap later in life. Maximizing TFSA contributions in your late 50s will ensure you have a pool of tax-free cash to draw from in retirement. Because the goal at this point isn’t to simply accumulate assets, but to create tax-efficient income.
• Calculate your pension gap: Your pension will replace up to 70% of your best five years of earnings. Use our handy pension income gap calculator to determine how much extra you need from your personal investments (TFSA/RRSP) to maintain your current lifestyle.

IN YOUR 60s: complete a smooth transition into retirement

This is the decade when most education members have fully transitioned into retirement.

While you might already be collecting your pension (along with your bridge benefit), your mid-60s is when government benefits kick in (and your bridge benefit ends).

That means it’s time to focus your shift from wealth accumulation to income planning.

Key financial milestones:

• Map out government benefits: Create a strategic timeline for triggering your Canada Pension Plan (CPP) and Old Age Security (OAS).
• Your bridge benefit ends at age 65: For retired Ontario education members, the retirement bridge benefit ends the month after your 65^th birthday (this timeline applies for both OTPP and OMERS recipients).

Investment strategy:

• Manage your RRSP-to-RRIF conversion: By December 31 of the year that you turn 71, you must legally close your RRSP and convert it into a Registered Retirement Income Fund (RRIF) or purchase an annuity.
• Plan ahead when it comes to RRIF withdrawals: Without proper planning, mandatory RRIF withdrawals can create higher tax bills later in retirement. Developing a withdrawal strategy well before age 71 can help preserve more of your wealth (we can help you with that).

IN YOUR 70s (and beyond): protect, simplify, and leave a legacy

As you progress into your 70s, focus on preserving wealth, managing taxes, and ensuring your estate plan is up-to-date and ready to be executed seamlessly.

Key financial milestones:

• Automate RRIF minimums: Set up your mandatory annual RRIF withdrawals to deposit automatically into your bank account or TFSA (provided you have available contribution room).
• Perform annual estate audits: On your birthday, check that your beneficiary designations on your TFSA, RRIF, life insurance, pension, and all other assets/benefits remain up-to-date and accurately reflect your current family structure.

Investment strategy:

• Funnel excess cash into your TFSA: If your pension, CPP, OAS, and mandatory RRIF withdrawals provide more money than you actually spend, do not let the excess sit idly in a taxable checking account. Transfer those funds directly into your TFSA every January to shelter future growth from the Canada Revenue Agency (CRA).

If you haven’t reached certain milestones by the time your birthday rolls around, remember that financial planning isn’t about achieving perfection. It’s about making steady progress.

• Are you carrying less debt than last year?
• Will you be saving and/or investing more this year?
• Is at least one of your financial goals on track?

This birthday, as you blow out the candles and make that wish, take a moment to celebrate the progress you’ve made so far. Then, start working toward the next financial milestone worth achieving.

Need help? Educators Financial Group is here to help you, every step of the way.

Sources:
https://www.otpp.com/en-ca/
https://www.otpp.com/en-ca/members/preparing-to-retire/retirement-checklist-pension-application/