PINKNEY FINANCIAL SERVICES

Life Income Fund

Retirement & Pensions

Life Income Fund (LIF)

A Canadian resident with a Canadian pension savings plan has the option to transfer their pension into a locked-in income plan, such as a life income fund (LIF). Since the investments within a LIF are “locked-in,” it may not be possible to withdraw money right away. Some provinces like Ontario, Nova Scotia, and Newfoundland and Labrador allow withdrawal from a LIF at age 55, whereas Alberta’s minimum age for LIF withdrawal at 50. Quebec, Manitoba and New Brunswick allow withdrawal of funds 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.

LIF

A LIF is like a RRIF, but the funds are in the plan come from a pension plan instead of RRSP contributions. A LIF is a type of registered retirement income vehicle that allows individuals to manage their retirement savings after they reach a certain age. LIFs are designed to provide a steady income stream during retirement.

Key Features of a Life Income Fund

  • Eligibility: LIFs are available to individuals who have reached the age of 50 in Alberta and have accumulated retirement savings in a registered pension plan or a Locked-In Retirement Account (LIRA).
  • Locked-in Funds: The funds held in a LIF are “locked-in” or restricted, meaning they cannot be withdrawn as a lump sum. This restriction is in place to ensure that retirement savings are used to provide income during retirement.
  • Income Payments: The LIF account holder must receive a minimum annual income payment, which is calculated based on factors such as the interest rate, individual’s age, the market value of the LIF, payment schedule, length of schedule and provincial regulations. The minimum payment must be at least equal to the legislated minimum amount, while the maximum payment cannot exceed a specific percentage of the LIF’s balance. These limits aim to ensure that the funds last throughout the individual’s retirement years.
  • Income Options: LIF holders can typically choose from different income options, such as a fixed payment amount, variable payments based on the LIF’s investment performance, or a combination of both. The income received from a LIF is taxable.
  • Unlocking Restrictions: Generally, LIFs have unlocking restrictions until you reach a specific age or meet other criteria, such as financial hardship or a shortened life expectancy. Once these conditions are met, you may have the option to unlock some or all of the funds in your LIF.
  • Conversion to Life Annuity: In some provinces, LIFs have a maturity age, usually between 80 and 90 years, at which point they must be converted to a Life Annuity. A Life Annuity provides a guaranteed income for life.

It’s important to note that LIF regulations can vary slightly between Canadian provinces. Each province has its own pension legislation, and the specific rules governing LIFs may differ accordingly.

 

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