The differences between LIFs and RRIFs
Recently I wrote about the differences between a LIRA and a RRSP. In this article I want to follow up and discuss the difference between LIFs and RRIFs.
What is a RRIF?
A Registered Retirement Income Fund (RRIF) is the most common income option for the RRSP. If a RRSP is a tax sheltered bucket of money, the RRIF is simply a tax sheltered bucket of money with a hole in it.
Related article: Everything you need to know about RRIFs
While the RRSP is designed for accumulation of funds for retirement, the RRIF is really designed to create regular systematic income in retirement. Some people suggest that you can withdraw money from a RRSP whenever you want so why would you need the RRIF? The RRIF is really designed for regular income in retirement. If you wanted monthly income, you may not want to call up the bank or your financial advisor every time you needed money. Instead, you would automate that income via a RRIF.
What are some of the differences between a RRSP and a RRIF? You can make contributions to a RRSP but not to a RRIF. Because the RRIF is designed for income, there is a minimum income amount that must be withdrawn every year from a RRIF
Related article: RRIF Minimum incomerules
What is a LIF?
LIF stands for LIfe Income Fund and the key word is income. A LIF is very similar to RRIF. In fact, the LIF is to a LIRA what the RRIF is to the RRSP. A LIF is used to convert LIRA money to income just like a RRIF is used to convert RRSPs to income.
A LIF is very important for those people that are retiring with a Defined Contribution Pension Plan
Related article: Income options for a Defined Contribution Pension Plan
What are the differences between RRIFs and a LIFs?
Just like the LIRA has similarities to the RRSP, the LIF has a lot of similarities to the RRIF.
- A Life Income Fund is designed to create regular income. If we used the bucket analogy, the LIF and the RRIF are just buckets with holes in them.
- In both cases, there is a minimum income that must come out of then plan.
- Income is only taxed when you receive income.
- In both the RRIF and the LIF, you can invest in many different types of investments like GICs, bonds, mutual funds, stocks, etc.
The big difference between the LIF and a RRIF is that the LIF not only has a minimum income but also a maximum income that prevents you from spending the money too quickly.
Related article: A detailed example of how to use a LIF
LIF income minimums and maximums
|Age||LIF Minimum||LIF Maximum||Age||LIF Minimum||LIF Maximum|
Before you convert a LIRA to a LIF for income, you should research the pension unlocking rules in your province or territory. When it comes to pensions, every province has its own set of rules so the pension unlocking rules can vary across Canada.
Related article: Understanding Pension unlocking rules
Because the LIFs have a maximum income, it can be very restrictive to access funds. As a result unlocking rules can be very favourable because they create greater flexibility.
Because of the restrictive nature of pension funds, I usually suggest people draw from LIFs before RRIFs and to draw the maximum out of the LIFs (not the minimum). The theory is to use up as much restrictive money as possible before using less restrictive money. This is not always the case as personal planning is important instead of using general rules of thumb.
I like your website as it is very informative. For retirement planning considering tax minimization, is a good approach to split income with a spouse and try to keep within the first tax bracket ($42,000) each and use TFSA for any amounts required beyond that? The approach seems simple to me but perhaps there are other considerations?
Hi I am now at 61+. I have $9.8K LIRA Locked in with RBA. What best I can do with this fund.
I had a prov pension plan which was converted to rrif or lira and then lif. …but only 50 percent went to lif so I could access fund..other portion was rrsp…..yet I am unable to transfer that rrsp into lif so I can continue with the coordinating pension deduction on my taxes…my tax slip from bank indicates rrif income when I withdraw from lif ……a rrsp w/d would not be eligible for pension deduction on taxes……….HELP. …..what are the facts
The fact is that you cannot make any deposits to rrif or to lif. These two registered accounts can be used only for withdrawals. The only deposits going into these accounts can come only from rrsp transfers. Lif accounts can only be fed by lira accounts not by rrsps to my knowledge.
Good day Jim,I have LIF Can I use them for buying a house?
I will be retiring next year 61 years old then. about 61000 in my Defined contribution plan. Very little in savings. My CPP will be around 500 per month. How can I access the cash in my pension plan?
In Ontario, can one transfer 50% of the Lira monies to a RRIF and the other 50% to a LIF? Thank you.
Yes, I have done precisely that. I had an amount of value in lira which was 100% transferred to a lif with a written understanding that 50% of the value in the lif was to be transferred to a rrif. This can only be done once in a lifetime and it is time restricted so it is quite important for the bank staff to be clear on this as some of them are not quite ‘there’. You might want to research the rules and get a hard copy printout and highlight the 50% rule and the time conditions. I value the fact that rrif has a minimum withdrawal and no maximum. The lif, on the other hand has the minimum but also has a limit on the maximum so I intend to withdraw the maximum from my lif until it is empty.
What if l wanted to move the lira and lm 46.
Great web site. But I’m confused about re the LIF withdrawal maximums.
Can you tell me which of these applies to my Bdefined contribution pension plan in BC? The second one below gives two answers.
https://klsfinancial.ca/lif-payments 7.38% or 5.48%? What is “federal/PBSA”?
I’ve gone to many sites giving answers close to or matching both of these.
Can I buy a house with a LIF? By the time I reach retirement age the price of homes will not be possible?
My husband has money in a LIF AND RSP he has had a stroke and won’t be 65 for 6 months . He planned on working for a while yet and this is not going to be possible now . Can he unlock the LIF now that he is ill
Concerned don’t know where to go for advice ..