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.

RRSP_vs_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  Because the RRIF is designed for income, there is a minimum income amount that must be withdrawn every year from a RRIF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 income rules

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.

LIRA_vs_LIF

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.

LIF_vs_RRIF

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
50 2.50% 4.47% 76 5.98% 8.28%
51 2.56% 4.51% 77 6.17% 8.81%
52 2.63% 4.55% 78 6.36% 9.44%
53 2.70% 4.59% 79 6.58% 10.19%
54 2.78% 4.63% 80 6.82% 11.08%
55 2.86% 4.68% 81 7.08% 12.18%
56 2.94% 4.73% 82 7.38% 13.54%
57 3.03% 4.79% 83 7.71% 15.30%
58 3.13% 4.85% 84 8.08% 17.65%
59 3.23% 4.91% 85 8.51% 20.94%
60 3.33% 4.98% 86 8.99% 25.88%
61 3.45% 5.06% 87 9.55% 34.11%
62 3.57% 5.15% 88 10.21% 50.58%
63 3.70% 5.24% 89 10.99% 100.00%
64 3.85% 5.35% 90 11.92% 100.00%
65 4.00% 5.46% 91 13.06% 100.00%
66 4.17% 5.59% 92 14.49% 100.00%
67 4.35% 5.73% 93 16.34% 100.00%
68 4.55% 5.89% 94 18.79% 100.00%
69 4.76% 6.07% 95 20.00% 100.00%
70 5.00% 6.27% 96 20.00% 100.00%
71 5.28% 6.50% 97 20.00% 100.00%
72 5.40% 6.76% 98 20.00% 100.00%
73 5.53% 7.05% 99 20.00% 100.00%
74 5.67% 7.40% 100 20.00% 100.00%
75 5.82% 7.81%

Unlocking rules

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.

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites JimYih.com and Clearpoint Benefit Solutions.

4 Responses to The differences between LIFs and RRIFs

  1. Hi Jim,

    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?

  2. Hi Jim;

    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?
    Thanks

    doug

  3. In Ontario, can one transfer 50% of the Lira monies to a RRIF and the other 50% to a LIF? Thank you.

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