Last updated: July 29, 2022
Last updated: July 29, 2022
A life income fund (LIF) is a registered account designed to pay you income from your locked-in pension assets. These assets can’t be taken out all at once, since a LIF is meant to provide retirement income throughout your life.
Let’s say you’re a Canadian or someone living in Canada with a Canadian pension savings plan. You can transfer your pension into a locked-in income plan, such as a life income fund (LIF). Since the investments within a LIF are “locked-in,” you may not be able to withdraw money from them right away. Some provinces like Ontario, Nova Scotia, Newfoundland and Labrador allow you to start withdrawing money from a LIF only at age 55, whereas Alberta sets their minimum age for LIF withdrawal at 50. Meanwhile other provinces like Quebec, Manitoba and New Brunswick let you withdraw money from a LIF at any age. It’s important to note that some provinces, like Saskatchewan, don’t offer LIFs, but they do offer similar locked-in products. Connect with an advisor to find out what type of locked-in products are available in your province.
There’s also a minimum and maximum amount you’re allowed to withdraw from your LIF every year. These withdrawal amounts are set by the Canadian and provincial governments. Visit your provincial government’s official website to learn more about pension savings and locked-in accounts or connect with an advisor for more detailed information.
You can choose what type of investments to hold in a LIF. Your options include (but aren’t limited to) the following:
These investments will continue to grow tax-deferred once they’re within the LIF. This means you don’t have to pay taxes on those investments until you start withdrawing funds from your LIF.
In many ways a LIF works like a registered retirement savings plan (RRSP) in reverse. Instead of putting money in, you take an income out. But remember, you can withdraw up to only a certain amount every year.
No, you can’t contribute to a LIF. A LIF is designed for withdrawing locked-in pension assets.
It depends on where you live and how old you are. Some provinces let you withdraw LIF funds at any age, whereas others allow you to do so only at a specific age. Provinces like Quebec, Manitoba and New Brunswick let you withdraw LIF funds at any age. But provinces like Ontario, Nova Scotia and Newfoundland and Labrador won’t let you withdraw funds until you turn 55. Meanwhile, Alberta lets you start withdrawing funds at age 50. Connect with an advisor for more detailed information.
The Canadian and provincial governments set out the minimum and maximum withdrawal rates for LIFs. This means there’s a minimum amount of money you must withdraw starting the year after you transfer pension assets into a LIF. There’s also a maximum amount that you can’t exceed. Connect with an advisor for more detailed information about LIF withdrawal rates.
You pay taxes only on the amounts you withdraw from a LIF – but the investments you hold within a LIF are tax-deferred. This means you won’t have to pay taxes until you withdraw money from your account.
You’re legally required to withdraw the minimum amount from your LIF every year. You can then move those additional funds into a tax-free savings account (TFSA) if you have the contribution room or you can move them into a non-registered account. You can also transfer those funds into your registered retirement savings plan (RRSP) if you’re under age 71 and have contribution room.
The main difference between a LIF and a RRIF1 is that a LIF usually holds assets that were earned by participating in a pension plan. A LIF also has a maximum withdrawal rate that prevents you from spending the money too quickly. A RRIF, however, does not have any maximum withdrawal rate.
1 RRIF is a registered retirement income fund.
There’s very little difference between these three locked-in accounts. Connect with a Sun Life advisor to discuss what’s right for your unique situation.
2 LRIF is a locked-in retirement income fund.
3 RLIF is a restricted life income fund.
The main difference between an annuity and a LIF is that an annuity gives you a guaranteed retirement income, whereas a LIF pays you a retirement income from your locked-in assets that can change depending on how the market performs.
A LIF and an annuity, in combination, can be a helpful source of income for you during your retirement years. Talk to an advisor to find out what’s right for you.
Your beneficiaries will receive the money remaining in your LIF. Most provinces require your spouse or common-law partner to be your beneficiary unless they give up this right. Some provinces will let your spouse, common-law partner or dependent child transfer your LIF funds into their own RRSP or RRIF. If you don’t have a spouse, partner or children, then you can name a beneficiary to inherit the money in your LIF. Connect with an advisor for more detailed information.