Life Income Fund (LIF)

Life Income Fund (LIF): Definition and How It Works

A Life Income Fund (LIF) is a Canadian registered retirement income vehicle designed to provide ongoing retirement income from locked‑in pension funds and similar assets. Typically created by transferring funds from a Locked‑In Retirement Account (LIRA) or a locked‑in RRSP that originated in a workplace pension plan, a LIF is intended to deliver regular retirement payments rather than a lump‑sum withdrawal.

Key features

• Holds locked‑in pension money and other qualified investments while providing retirement income.
• Withdrawals are treated as taxable income in the year received.
• Minimum and maximum annual withdrawal limits apply; these are set under federal and provincial pension and tax rules and are updated periodically.
• Provincial rules can affect withdrawal limits, eligible ages, and conversion requirements.
• In most provinces the LIRA must be converted to a LIF (or other permitted option) by the end of the year the owner turns 71.
• Funds in a LIF are generally protected from creditors and must be used to provide lifetime income.

How withdrawals work

• Annual range: Each year you must withdraw at least the RRIF minimum and not exceed the LIF maximum (the maximum is intended to preserve sufficient funds to provide lifetime income).
• Election of withdrawal: Your LIF provider issues annual statements and you typically choose the withdrawal amount within the allowed range before the fiscal year.
• Age rules: You must meet the plan’s early retirement age to establish a LIF and meet age requirements to begin receiving payments; the year after you turn 71 is the latest you must be drawing income.
• Spousal consent: If you have a spouse, their written consent may be required before setting up a LIF because withdrawals can affect future survivor benefits.
• Death benefit: On the owner’s death the remaining balance is paid to the spouse (or other beneficiaries if the spouse renounces or is absent), in accordance with provincial rules.

Eligible investments

Qualified investments typically include:
* Cash
* Mutual funds and exchange‑traded funds (ETFs)
* Securities listed on regulated exchanges
* Corporate and government bonds

Only allowed investment types may be held in a LIF; check with the provider for a complete list.

Rules that commonly apply

• Same RRIF minimum withdrawal rules apply for minimums.
• Maximum withdrawal limits are specific to LIFs and set to preserve lifetime income.
• Provincial differences: Some provinces impose unique requirements (for example, a mandatory conversion to a life annuity by a certain age in some jurisdictions).
• Providers must supply annual statements and withdrawal limits are derived from federal and provincial legislation.

Advantages

• Tax‑deferred growth inside the LIF until withdrawals are made.
• Flexibility to choose among qualifying investments.
• Creditor protection in many situations.
• Designed to deliver lifetime retirement income rather than a one‑time payout.

Disadvantages

• Minimum age requirements to open a LIF and to begin withdrawals.
• Maximum withdrawal limits can restrict access to larger sums if needed.
• Only qualifying investments are permitted.
• Provincial rules vary and can be complex to navigate.

How a LIF relates to other Canadian retirement programs

• Old Age Security (OAS) vs. Canada Pension Plan (CPP): OAS is a residence‑based federal benefit paid to eligible Canadians 65 and older; CPP is a contributory plan based on employment contributions that provides retirement, disability, and survivor benefits. LIFs are private registered accounts and are separate from these government programs.
• TFSA vs. RRSP: TFSAs provide tax‑free growth and withdrawals with no deduction on contributions; RRSPs provide tax‑deductible contributions and tax‑deferred growth with taxable withdrawals. LIFs are RRIF‑type retirement income accounts that hold locked‑in funds originally from pension plans or RRSP/LIRA transfers.

When to consider a LIF

A LIF is appropriate when you have locked‑in pension funds that you want to convert into a regulated stream of retirement income while retaining investment control and creditor protection. Consider a LIF if you prefer investment flexibility over purchasing an immediate life annuity and are comfortable with prescribed withdrawal limits and provincial rules.

Bottom line

A LIF converts locked‑in pension assets into a tax‑registered vehicle that provides controlled, lifetime retirement income. It offers tax‑deferred growth, investment choice within qualifying categories, and creditor protection, but imposes age and withdrawal limits and is subject to provincial variation. Consult your pension provider or a financial advisor to understand the specific rules, withdrawal ranges, and conversion dates that apply to your province and situation.

Sources: Government of Canada — Income Tax Act and related folios; Superintendent of Financial Institutions (Canada) guidance on Life Income Funds; Canada Pension Plan materials.