Turning Your LIRA Into Retirement Income

A reader suggested I expand on my post on converting RRSPs to RRIFs to include locked-in plans. So here it is.

Thank you, Frank.

What is a LIRA?

First, let’s review.

Employees enrolled in a registered pension plan who remain with their company until the prescribed retirement age will receive income for life from the pension. If you left the company prior to retirement, for whatever reason, you would have been given the option of taking your pension funds as a lump sum commuted value of the plan.

This sum was required to be deposited into a LIRA (Locked-in Retirement Account) or LRSP (Locked-in Retirement Savings Plan). These plans have unique regulations specified by the pension legislation of a specific province, or federally, and are designed to provide the same benefit as the original pension plan.

Different provinces have different names for their plans, but for simplicity I’ll refer to LIRA and LIF.

Converting your LIRA into retirement income

In many ways converting a LIRA to a LIF is similar to switching a RRSP to a RRIF, but there are some differences.

You may do the conversion as early as age 50 (Alberta), but by the year you turn 71, you must convert your LIRA into one of:

  1. A life annuity. This is the closest resemblance to receiving monthly pension income. The annuity provides you with a regular, specific payment for life. The amount paid will depend on the terms of the contract and includes such things as your age, current interest rates, and the amount you have to invest. The standard form of payment is a 60% joint and survivor annuity.
  2. LIF (Life Income Fund) or LRIF (Locked-in Retirement Income Fund – ON, MB, NFLD) or RLIF (Restricted Locked-in Income Fund – Fed). These offer a more flexible alternative to a life annuity and give you more control over your investments. You must withdraw a minimum amount based on the Income Tax Act rules (similar to a RRIF) but your withdrawals are also subject to a maximum amount. In Newfoundland, a LIF must be converted to a life annuity at age 80.
  3. PRRIF (Prescribed Registered Retirement Income Fund). This account most closely resembles a RRIF in that you must withdraw a minimum amount, but there are no maximums. They are only available in Manitoba and Saskatchewan. Your spouse is automatically named as beneficiary, but may sign a waiver allowing you to designate a different beneficiary.

Unlocking 50% of LIRA funds

Recognizing the need for some flexibility, a fairly recent feature is the ability to withdraw, or transfer to a RRSP or RRIF, up to 50% of your LIRA at the time you convert it to a LIF.

Why would you want to do this?

A withdrawal may be a necessity if you have no other income, or maybe you want to pay off a large debt that’s hanging over your head. Just remember that the withdrawal will be taxed as regular income, so make sure it’s a worthwhile thing to do.

If the money is transferred to a RRSP or RRIF, there are no immediate tax consequences. The benefit of unlocking the funds is that you have more flexibility to withdraw money when you want/need it without being limited to the maximum amount. You may want more income in the early years of retirement, or if you retire before you are allowed to start collecting government benefits.

Personal circumstances will dictate whether or not this is beneficial for you. In most cases you’ll need your spouse’s consent.

Consolidating plans

If you have multiple LIRAs from several companies you’ve worked for, you can consolidate them into one LIF if the provincial legislation is the same. If they fall under different jurisdictions, B.C. and Newfoundland, for example, they will have to remain separate – remember each province/federal has different regulations.

Final thoughts

To fully understand your choices, be sure to review your pension documentation well ahead of time so there are no surprises.

Make sure you understand the requirements associated with your LIRA and consider which option is likely to work best for your particular circumstances.

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13 Comments

  1. Valerie Palmer on October 13, 2017 at 5:37 am

    Just want to say how much I enjoy your website! Valerie Waterloo Ont Canada Keep doing it!!

    • boomer on October 13, 2017 at 9:40 am

      Thank you Valerie for the kind words. I hope you keep reading.

  2. Frank on October 13, 2017 at 5:54 am

    Thanks very much Marie for using my suggestion. As an independent investor I found this article most helpful. It was well researched and detailed. Best Regards, Frank

    • boomer on October 13, 2017 at 9:41 am

      You’re very welcome, Frank. Thanks for the suggestion.

  3. Peter on October 13, 2017 at 6:18 am

    I am 66 years old and have a self-directed LIRA.

    Can you please tell me what is the required procedure to:
    1. convert it to a LRIF; and
    2. to unlock up to to 50% of the LIRA

    Thank you.

    • boomer on October 13, 2017 at 9:42 am

      Hi Peter. You just need to go to your financial institution and they will have all the necessary forms for you.

  4. Norb on October 13, 2017 at 8:13 am

    Your information is always so useful and well explained. Thank you so much!

    • boomer on October 13, 2017 at 9:42 am

      Thank you Norb. I’m glad you found it useful.

  5. Cheryl on October 13, 2017 at 8:02 pm

    I have a LIRA, pretty much how you called it, when I got laid off about 10 years ago and had 3 choices what to do with the money. When I turn 65 I’ll get payments and I thought they’d just go on as long as I live without much further thought on my part. Thanks for the article. It never occurred to me that I’d have to convert it into a LIF shortly after I start getting disbursements.

    • boomer on October 14, 2017 at 9:49 am

      Hi Cheryl. You need to convert your LIRA to a LIF prior to getting payments. If you want to start payments when you’re 65 you’ll need to set it up in the year you turn 64.

  6. Subir Goswami on September 13, 2018 at 9:56 pm

    I have a LIRA account in Canada but I live in USA. I will be 60 soon. Could I convert it to LIF start getting pension? I don’t submit Income tax return as I am a non resident Canadian.

  7. mark on September 27, 2018 at 2:19 pm

    I am 53 years old. I have LIRA $. I need $ now. How would I do this? And how much is my max I can get

    • Francine Dick, CFP on December 17, 2018 at 5:44 am

      Hi Mark. Depending where you live you might have to wait until you are 55 to change your LIRA to a LIF and begin withdrawing funds. Also keep in mind that with a LIF, there is a maximum amount you can withdraw. However, if you are facing financial hardship, such as rent payment or mortgage arrears, you can make a special request to withdraw the funds. Check out the Financial Services Commission in your province.

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