What is a LIF?

A Life Income Fund (LIF) is a locked-in registered retirement vehicle designed to provide income from pension money. It functions similarly to a Registered Retirement Income Fund (RIF) but is specifically intended for funds that originated from a locked-in source such as a locked-in retirement account (LIRA) or a pension plan. The locked-in nature means there are government rules about how and when money can be withdrawn.

Specifications

• Eligibility: Typically available when a LIRA holder reaches age 55, though rules allow flexibility if still employed.
• Source of funds: Money transferred from a LIRA or directly from a pension plan (including cumulative pension values).
• Conversion allowance: At the time of converting a LIRA to a LIF, up to 50% of the LIRA value may be converted to an RRSP within a specified window (confirm timing with the financial institution).
• Withdrawal rules: Government-set minimum and maximum annual withdrawal limits apply and vary by province.
• Tax treatment: Withdrawals are taxable and counted as regular income subject to marginal tax rates; financial institutions will apply withholding tax at source for lump-sum withdrawals.

How a LIF Works

When someone leaves an employer pension plan, the pension money often moves into a LIRA. From age 55, that LIRA can be converted into a LIF. The LIF pays retirement income while preserving the locked-in status that prevents full unrestricted access to the funds.

There is a strategic opportunity at conversion: a portion of the LIRA can be moved to unlocked registered savings. Specifically, up to 50 percent of the LIRA value at conversion can be transferred into an RRSP, which can later be accessed more flexibly (though an RRSP must be converted to a RIF by the year the holder turns 71).

Withdrawal and Tax Details

Withdrawals from a LIF are taxable and count toward taxable income. It is important to plan for the marginal tax rate, which is the rate applied to the next dollar of income and determines the tax impact of withdrawals.

Withdrawals from a LIF count towards your taxable income.

Financial institutions withhold tax on lump-sum withdrawals according to government tables. As a general guideline, common withholding thresholds are:

• Under $5,000: 10% withholding
• $5,000 to $10,000: 20% withholding
• Over $15,000: 30% withholding

These withholding amounts can differ by province (for example, Quebec uses different thresholds), and the actual tax owing will be determined when filing an income tax return.

Minimums and Maximums

Governments set annual minimum and maximum withdrawal limits for LIFs. Minimums are generally similar to RIF minimums, but maximums can be higher for LIFs because of the locked-in structure and pension-origin rules. It is essential to check province-specific limits on government websites or with a financial institution before planning withdrawals.

Investment Options and Strategy

A LIF supports a wide range of investments, so investors can use the same asset allocation approach across registered accounts. Typical choices include:

• Mutual funds
• Segregated funds
• Exchange traded funds (ETFs)
• Individual equities and bonds

Keeping asset allocation aligned across a LIF, RRSP, TFSA, and non-registered accounts makes portfolio management and rebalancing easier while maintaining tax efficiency.

Comparisons: LIF vs LIRA vs RRSP vs RIF

• LIRA: A locked-in retirement account holding pension transfers until converted or used for retirement income.
• LIF: A locked-in income vehicle that pays retirement income and imposes withdrawal limits.
• RRSP: A flexible registered savings account that can be accessed (subject to taxes and withholding rules) and must convert to a RIF by age 71.
• RIF: The standard retirement income vehicle for RRSP savings with government-set minimum withdrawals but generally fewer locked-in restrictions than a LIF.

Pros and Cons

Pros

• Provides a steady income stream while preserving pension money for retirement.
• Locked-in rules can protect long-term retirement savings from impulse withdrawals.
• Flexible investment choices allow for diversified portfolios.
• Conversion window may allow partial unlocking (transfer up to 50% to an RRSP) for greater access.

Cons

• Annual withdrawal minimums and maximums can limit cash-flow flexibility.
• Withdrawals are taxable and subject to withholding at source for lump sums.
• Rules vary by province, adding complexity to planning.
• Fees and product features vary by institution; costs are not standardized.

Who Is a LIF Good For?

A LIF is suitable for individuals whose retirement money originates from a pension or LIRA and who want a regulated way to receive income while protecting the remaining capital. It works well for those who value structure in retirement withdrawals, want to preserve funds for later years, and prefer to maintain a single investment strategy across accounts.

It may be less suitable for people who require unrestricted access to large lump sums or who need maximum flexibility with early retirement spending.

Recommendation and Next Steps

Treat a LIF as one tool in an overall retirement plan. Compare the LIF’s withdrawal limits, fees, and investment options offered by financial institutions. Confirm the province-specific rules around minimums and maximums and verify any time windows to transfer up to 50 percent to an RRSP at the time of conversion.

For tax planning, calculate the likely marginal tax impact of withdrawals and consider whether it makes sense to unlock a portion into an RRSP to permit more flexible access while keeping the remainder locked into a LIF for income security.

Final Thoughts

A Life Income Fund balances income security and investment flexibility for pension-origin funds. It is a practical solution for turning locked-in pension money into retirement income while still allowing a degree of strategic access and portfolio control. Reviewing province-specific rules and consulting a financial advisor or tax professional will help ensure the LIF fits into a broader retirement strategy.