You’ve probably heard of RRIF but not LIF. LIF is a type of RRIF in Canada.
Planning your finance and retirement go hand-in-hand to improve your living situation; you can’t plan your finance without factoring in retirement. So yes, how you plan for your retirement will determine how you live after retiring.
With proper planning, you will have insight into what your retirement will look like as you still need to maintain specific income streams to survive. The most prominent saving plan amongst retirees is the Registered Retirement Income Fund (RRIF).
While RRIF is one amongst many, there are different types of RRIFs to choose from; the life income fund is one. This article will be reviewing Life Income Fund, its features, how its works, and administering financial institutions in Canada.
Life Income Fund (LIF) in Canada – An Overview
Also referred to as LIF, the Life Income Fund is a unique kind of RRIF in Canada. It is a government initiative designed to help potential retirees to hold pension funds and payout retirement savings over a set duration.
In addition, financial institutions provide individuals with this service to help them manage the payouts from locked-in pension funds and other investments.
However, in most cases, your insurer might hold on to your pension investment if you decide to leave your employer. That is, you might not have access to the funds; these investments are termed locked-in assets.
Also, you can manage your assets within other investment channels, although you may have to convert to a life income fund plan when you are ready to start withdrawals. However, unlike other RRIFs available in all provinces in Canada, LIF is not available in Prince Edward Island and Saskatchewan.
Also, some territories in Canada might require that you invest your life income fund assets be invested in a life annuity. Nonetheless, LIF is similar to conventional RRIFs as it takes your pension funds and retirement saving and converts them into a regular income that will span throughout your retirement.
Life Income Fund Age Limit
The Canadian government regulates life income funds, especially the amounts an investor can withdraw. In addition, some regulations are specified annually via the Income Tax Act’s stipulations for RRIFs. Nonetheless, there is an age limit required to qualify for a life income fund in Canada.
Once you clock 71 years, you must transfer the fund in your Locked-in Retirement Account (LIRA) to a LIF account. Moreover, in some provinces in Canada, you can commence LIF withdrawals at any age as long as you use the income for retirement. However, note that you cannot withdraw the funds in LIF at once since it is designed to last for life in retirement.
Life Income Fund Minimum Annual Withdrawal
The minimum annual withdrawal per individual varies per age. However, the Canadian government expects you to make a minimum withdrawal yearly. Subsequently, when you start making withdrawals, you must monitor the minimum and maximum amount you can withdraw.
These amounts are available in the annual Income Tax Act. Also, you can get every detail on all RRIFs in this Act. Note that the percentage the government uses to calculate the amount increases with your age. Also, the government will tax any withdrawal that exceeds the minimum amount as income.
Life Income Fund Maximum Annual Withdrawal
Generally, the maximum RRIF/LIF withdrawal is the larger of two formulas, the percentage of the whole investments. However, the maximum amount you can withdraw varies per province in Canada.
Also, it is calculated based on your age, your LIF balance, and the fiscal year’s LIF reference rate. And unlike an RRIF, there is an annual limit on the amount you can withdraw from your LIF.
How Life Income Fund Works
Most financial institutions in Canada offer this service. And like the RRIF, you can spread your investment in LIF through bonds, mutual funds, stocks, etc. By doing this, you have total control of your asset and savings.
The Canadian government determines the LIF payouts you receive, the minimum and maximum. In most provinces, the provincial government requires you to purchase an annuity with the remaining LIF assets when you turn 80.
In addition, LIF is flexible when it comes to how and when you want your payment. For example, you can select a minimum or maximum payment schedule.
Alternatively, you can decide to choose a different stream level of payments. Also, you can decide to receive your LIF on a monthly, quarterly, semi-annual, or annual basis.
Life Income Fund Administration
Many financial institutions in Canada offer life income funds to consumers. This service is to support retirement distribution for participating investors. Your issuing financial institution must provide you with an annual statement.
With the annual statement, you can set the amount of income you would like to withdraw at the start of each fiscal year. Note that this amount must be within the pre-set range to ensure that your account has enough funds to provide a lifetime income for you.
LIF Administering Financial Institutions
Below are some financial institutions in Canada that provide life income funds:
Sun Life Financial
Sun Life Financial has several investment options for LIF for investors. Some of them include insurance guaranteed investment contracts, mutual funds, segregated fund contracts, etc.
On the other hand, Canada Life allows participating investors to convert their registered pension, locked-in registered retirement savings, or locked-in retirement account assets. In addition, Canada Life also facilitates and simplifies payment withdrawals for retirement income.
Canadian Imperial Bank of Commerce
The Canadian Imperial Bank of Commerce is one of the few financial institutions that offer a LIF daily saving account. In addition, they help facilitate retirement distributions allowing investors to earn daily interest on their account investment.
Summarily, LIF is another unique retirement vehicle you can use to plan towards your retirement. However, unlike RRSPs and RRIFs, LIFs have withdrawal restrictions and fund unlocking, although they are akin to provincial legislation.
Nonetheless, your insurer will pay your available LIF balance to your spouse or beneficiary upon death if they are absent or renounce the payment.
However, if it is a federal LIF, the government will pay the funds to your spouse even though it will remain locked. Also, they must transfer the funds to a locked-in RRSP or LIF in the spouse’s name.