Last updated: July 29, 2022
What is a life income fund?
A life income fund (LIF)* is a type of registered retirement income fund (RRIF) designed to pay you income from your locked-in pension assets.
However, you can’t withdraw all your funds out of a LIF at once. It is meant to provide retirement income throughout your life. Instead, you withdraw funds from a LIF between a minimum and maximum every year.
Simply put, a LIF is one of the options you can use to convert funds in your locked-in registered account (LIRA) or your defined contribution pension plan (DCPP) into retirement income.
*Depending on the pension legislation governing your locked-in savings, you may rather transfer your pension savings to one of the following: Locked-in Retirement Income Fund (LRIF), Prescribed Retirement Income Fund (PRIF), or Restricted Life Income Fund (RLIF). Speak with a Sun Life advisor for more information.
Key retirement income features of a LIF
- Your savings are tax-deferred until withdrawn.
- You make all investment decisions*.
- You must withdraw a certain amount each year, based on your age. But you can choose how much, between the minimum and maximum.
* Subject to the terms and conditions of the product in which you invest your savings
How does a LIF work?
When leaving an employer with a pension plan, you’ll have the option of moving the value of your plan to a LIRA. While in the LIRA, you can invest and manage the funds, but you can’t withdraw from a LIRA. When you’ve reached retirement age (according to your original pension plan), the funds can be withdrawn after they are transferred to a LIF.
Speak with an advisor to learn how to transfer your savings to a LIF
General rules
You may transfer funds that are locked-in to a LIF if you:
- Have a LIRA and you’ve reached retirement age as specified by your pension legislation.
- Have participated in an employer pension plan and you’ve reached retirement age or early retirement age as specified by your pension legislation.
- If you have a spouse or common-law partner,* you must get their consent before setting up a LIF as withdrawals can affect their future benefits.
- If you haven’t done so, you will have to convert your LIRA to a LIF before the end of the year you turn age 71.
Connect with an advisor to find out what type of locked-in products are available in your province
*Throughout this page, the term “spouse” refers to both married couples and common-law partners
LIF withdrawal rules
- Your withdrawals are considered income and you will have to pay tax on them at your marginal tax rate.
- You must begin receiving payments the year after you open a LIF.
- You must specify the amount of income (within the minimum and maximum withdrawal amounts) you’d like to withdraw at the beginning of each fiscal year
LIF minimum
LIFs follow RRIF minimum withdrawal rules. This means that you must withdraw a minimum amount based on your age at the start of the year and the value of the account on December 31 of the previous year. You must continue to receive t hese minimum withdrawals every year.
If you have a younger spouse, you can use your spouse’s age to determine your minimum LIF payments.
LIF maximum
LIFs also have a maximum withdrawal amount every year. The maximum withdrawal amount is based on your age at the beginning of the year, the value of your account on December 31 of the previous year, your pension jurisdiction, and the rate set by the Canadian government (CANSIM rate).
Connect with an advisor for more detailed information about LIF withdrawal rates
Frequently Asked Questions
What kind of investments can I hold in a LIF?
Your options include (but aren’t limited to) the following:
mutual funds, segregated funds and insurance GICs.
These investments may continue to grow tax-deferred. This means you don’t have to pay taxes on investment income until you start withdrawing funds from your LIF.
Can I contribute to a LIF?
No, LIF accounts are funded by your former employer pension plan assets or a LIRA. You can’t make additional contributions to a LIF account. You can only withdraw from it.
Do I have to be living in Canada to have a LIF?
No, you may be allowed to have a LIF even if you’re a non-resident of Canada.
Connect with a Sun Life advisor to discuss your unique situation
What’s the difference between a LIF and a RRIF?
The main differences between a LIF and a RRIF are that:
- LIFs holds assets that were contributed to when participating in an employer pension plan. RRIFs in comparison, hold assets that were contributed to a registered savings plan , like an RRSP.
- LIFs have a maximum withdrawal rate that limits the amount you can withdraw annually. A RRIF does not have any maximum withdrawal rate.
Are there any differences between a LIF, pRRIF, LRIF and an RLIF?
These plans are similar but there are a few differences between them to be aware of.
Connect with a Sun Life advisor to discuss your unique situation
What’s the difference between a LIF and a payout annuity?
A payout annuity is an income-generating insurance product that provides guaranteed income.
A LIF, however, is a type of plan that can hold a variety of investment products. Income withdrawn can vary between annual minimum and maximum withdrawal rates based on various factors, like your age and the value of your funds.
A LIF and a payout annuity, in combination, can be a helpful source of income for you during your retirement years.
What happens to a LIF when I die?
When you die, your spouse or common-law partner at the time of death will receive the value of your LIF funds, unless they have waived their entitlement to the LIF.
If they have waived their entitlement, or if you don’t have a spouse or common-law partner at the time of death, then either your estate or if applicable, if applicable, a named beneficiary will receive the money remaining in your LIF.