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RIF LIRA LIF and Guaranteed Income Plus
 

After the years of savings and wealth accumulation it comes time to contemplate retirement and removing the investment risks in your portfolio. In the year you turn age 71,(or your own elected retirement age) all registered accounts will need to be changed to a tax efficient and maximized lifelong income program known as “Retirement Income Accounts” as you transition into and through retirement.

International statistics reflect the world’s largest upcoming retirement boom in history. During the next decade we can extrapolate a demand for secure and sustainable solutions to meet the income needs this population requires. Making this transition requires amalgamating RRSP accounts, understanding your defined benefit pension plan and group pension options. Guaranteed Lifetime Withdrawal Benefit programs also protect against longevity, inflation and any loss in negative performing world markets. Included in the programs are the CPP (Canada Pension Plan) and current OAS (Old Age Security Bonus)

At least ten years out from retirement, the necessary planning and account choices will provide the right investment contract to help you reach your goal. Your investment advisor is your hired professional. In order to facilitate your retirement plan your professional needs to know what your goals are. Sometimes the reality of living on fixed income is difficult to accept, and your advisor will need to understand not just your immediate obligations, but also how the balance of your retirement and funds are to be relinquished to your estate. Therefore it is pertinent to include in your retirement discussions your estate transference too. We encourage joint meetings with your accountant and or lawyer to ensure that no details are missed.

a) When Changing from RRSP to RIF

Unlike wealth accumulation and the various RRSP accounts you have used over the years, it is advisable to amalgamate all your RRSP accounts into a single income contract that can provide sustainability and security with guarantees. These contracts should have flexibility. The RIF (Retirement Income Funds) is a fund you establish with a carrier and that CRA keeps registered. You transfer property to the carrier from an RRSP, RPP, or from another RRIF, and the carrier makes payments to you. Establishing a RRIF can be done at any age earlier, but must be done no later than the year the annuitant turns 71. Once a RRIF is established, there can be no more contributions made to the plan nor can the plan be terminated except through death.

b) Locked-in retirement accounts (LIRAs) - also known as locked-in RRSPs

When an employee has terminated employment and was a member of a registered pension plan, any funds due to the employee under that plan may be transferred to a LIRA. A LIRA is the same as an RRSP, except that the funds are locked-in. Withdrawals may not be made from a LIRA. By the end of the year in which the taxpayer turns 71, a LIRA must be transferred to one of the following:

  • life annuity
    • provides regular periodic payments for life, depending on the purchaser's (and perhaps their spouse's) age and sex, and current interest rates
  • life income fund (LIF)
    • allows control over investments in the account, and is subject to minimum and maximum annual withdrawals

Federal or provincial pension legislation defines the minimum age at which a LIRA can be transferred to a life annuity, LIF or LRIF.

Mandatory conversion to life annuity

In some provinces, the LIF or LRIF must be converted to a life annuity at a certain age (usually 80). For LIFs and LRIFs under federal jurisdiction, this is no longer required.

See the article Unlocking your locked-in pension accounts, which includes information on the 2008 Federal Budget changes regarding federally-regulated pension plans. There are rules enabling current LIRA holders opportunity to start withdrawing income from the LIRA after it has been changed to a LIF. Note: The income stream cannot be reversed and is subject to income tax.

Important Information regarding fees: Subject to any contractual fees associated with deferred sales charges, annuity charges, and GMWB charges. If this type of retirement income seems too expensive, the market price should tell you something about what true pensions are actually worth. Pensions seem expensive because they are valuable, even if you don’t think so.

 
 
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