What is a Life Income Fund (LIF)?
A registered fund that performs as an addition to an individual’s locked-in retirement account (LIRA) or pension plan is termed a Life income fund. The funds which are shifted to a LIF are saved from taxes and are taken out to give retirement income to the individual. In simpler terms, if a person had an ongoing pension plan with his employer and left that company, the funds are used to open a LIRA. At retirement, he can convert this LIRA into a LIF as it will provide him with funds to cover his living expenses after retirement.
The LIF are useful if one is looking to:
- Get regular funds every year
- Select your payment options
- Grow your investments without added taxes on it
- Access funds while approaching retirement in a LIRA
The money collected as the life income fund can’t be withdrawn until the individual starts retirement. After attaining the minimum age as the province requires, the person starts to get income from this fund or pension money by changing it into a LIF or LRIF. One must shift his funds from LIRA to a LIF before December 31 of the year you turn 71.
There is a set minimum and maximum amount which is required to be withdrawn by the person. This amount is restricted to ensure that one’s retirement savings last him his lifetime. This minimum amount is calculated as per the person’s age, and it increases with the increasing age of that person. The maximum amount is calculated based on age, the LIF’s balance and the reference rate set up each year.
How the Life Income Fund fits in your financial plans:
You control your investments
The money in the LIF or LRIF or RLIF can be an investment in varied ways, and you get to choose how your money will be invested, grow and work. This means that you can choose the investment method as per your financial aspirations and degree of risk tolerance. One may invest in GIC’s which are low risk, segregated funds and mutual funds.
You get some control of your income
Along with the varied available payment options, you also get a minimum income that is required to be taken out by you every year and a maximum income that can be withdrawn. This limit allows you to have some control over the usage of your income. If the amount withdrawn exceeds the minimum amount, then it is taxed as income.
Your investment is a tax deferral
In LIF, the income is taxable only when it is withdrawn from the plan; thus, the investment is tax deferral.
A beneficiary can be selected
Under the life income fund, one can choose a beneficiary who will be receiving the funds in case of the investor’s death.
How does the LIF payment work?
As explained, there are limits on minimum and maximum amounts that can be withdrawn every year, depending on the person’s age. The person may opt to get monthly payments from the LIF or wait until the end of the year to receive a lump sum. This income, either withdrawn monthly or yearly, will be taxed afterwards.
Can you unlock a LIF?
In standard cases, the answer is no. However, there are some exceptional events where this unlocking of funds is possible. Unlocking in more straightforward terms means withdrawing more than the allowed LIF maximum amount. The circumstances in which unlocking can be done are –
- A person’s life expectancy is reduced: In cases when a person has got to know that his life duration is shortened due to being diagnosed with an incurable illness. Then the person is allowed to get the unlocking done and spend the life income funds as per his wish and needs.
- One has major medical expenses: When the medical bills are so much that one is facing difficulty in paying or where it has become hard for the person to have funds for his living, he may apply for the unlock of funds.
- A person is being evicted from his residence: If a situation arises in which the landlord is evicting a person from his residence for non-payment of rent, he may apply to unlock this fund.
The LIF or Life income fund plan has been emerging in the past years in countries like Canada and America because of the benefits it provides to the investors. Talking about LIF as an investment option, these funds are ideal if one plans for children’s higher education or payment of long-term goals. Even the investors who invest in high-risk investments consider investing in LIF for diversification. The funds which are shifted to a LIF are saved from taxes and are taken out to give retirement income to the individual. The money collected as the life income fund can’t be withdrawn until the individual starts retirement. There is a set minimum and maximum amount required to be withdrawn by the person every year after retirement. The life income funds can’t be unlocked; however, there are some exceptional circumstances where this unlocking of funds is possible.