So how do you apply for CPP if you choose to retire early?  You can visit the Service Canada web page at www.servicecanada.gc.ca and fill out an online application.  If you haven’t decided whether or not you are going to apply yet you can also contact Service Canada to find out what your estimated monthly CPP benefits are going to be, the closer you are to retirement the more accurate the numbers will be.  Your benefits depending on how much you have paid into the plan which in turn is dependent on how long you have been working in Canada and your income level.

In order to start collecting CPP you need to stop working, or at least stop getting paid by the end of the month before the month before that you will begin receiving payments.  If you choose to stop your CPP payments once you’ve started to receive them you may do so for up to six months, but be aware that you must repay all the benefits that you receive during that period.

So as you can see your idea of early retirement may not be the same as the governments!  You may wish to retire early at 55, that just means that you’re going to have to save enough before than to provide you with enough income to get by without government supplements.  Careful planning and disciplined savings can get you there!

Different asset classes historically have provided differing levels of return over time, therefore diversification of asset classes is key to reducing the variability of your portfolios returns.  Choosing the right mix of asset classes is done by assessing your particular level of risk tolerance.  A portfolio of 100% equities could cause you to panic and sell of your entire portfolio at the wrong time if your risk tolerance does not allow for the swings in equity values.

The most important part of asset allocation is to choose a plan that’s right for you and stick with it.  Two asset allocation strategies you may choose to adopt are strategic asset allocation and tactical asset allocation.  When using strategic asset allocation you establish your base portfolio weights of asset classes.  Then the portfolio is rebalanced at specified intervals to meet the original target weights.  Tactical asset allocation involves taking advantage of short-term market inefficiencies.  This involves an element of market timing but allows you to participate in the market when you feel a particular sector is going to outperform.

So whats the best asset allocation mix for you?  Its best to speak to your financial advisor about your time horizon and investment goals so that he/she can help you decide your asset mix.  If you don’t have an advisor you can use an online tool like this one to help you determine your asset mix.

http://www.ipers.org/calcs/AssetAllocator.html

Asset allocation is a vital component in any retirement plan!  Follow these simple steps and they will help you along your way to an early retirement!

The savings incentives are called Canada Education Savings Grants (CESG) and Canada Learning Bonds (CLB). The maximum amount that can be contributed to an RESP per child is $50,000 with no annual maximum but the Government of Canada will only apply CESG credits to the first $2500 contributed per year, each child is eligible for these credits up to the age of 17 although special rules apply between age 15 and 17. If you contriubte $2500 per year the CESG credit you will receive will be $500. The Canada Learning Bond credit is available to modest income famalies and depends on your income. For more information on both CESG credits and CLB credits you can visit the Government of Canada website at http://www.canlearn.ca/eng/saving/resp/index.shtml.

Once your child enrolls in university withdrawals can be made from the amount with proof of enrollemnt. You may withdraw $5000 in the first 13 weeks and any amount after that. Any income earned in the account will be taxed in the childs hands which since the child is in university should amount to little or no income tax being payed depending on the childs income. Contribution amounts are of course withdrawn with no tax implications.

If your child decides not to attend university, the CESG credits can be used for a siblings education or must be returned to the Governemnt of Canada. Any income or contriubtions in the account can also be used for a siblings education or contributions can be withdrawn tax free and up to $50,000 of income can be transferred to your own RRSP account without tax implications.

The savings in this account can grow quite dramatically, if you were to contribute $2500 per year from the time the child is born up to age 17, you would also receive $500 per year in CESG credits. This amount would grow to a staggering $85,485.03 by the time your child is ready to attend university, assuming you were making a 6% return. If you were to contriubte a yearly amount with the goal of maxing out the lifetime limit of $50,000 per child in contriubtions this amount would grow to $102,910.63. As you can see the results speak for themselves! So while your saving to retire early don’t forget to save for your childrens education as well!