Life Income Funds LIFs

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Life Income Funds(LIFs)

• Personal Financial Planning

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K. Hartviksen
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Life Income Funds

• Provides an alternative to a life annuity for
  individuals who have transferred pension funds to
  a locked-in RRSP.
• A LIF is similar to an RRIF, but with some
  significant limitations.
• LIFs are purchased with locked-in retirement
  savings such as another LIF, a Locked-in
  Retirement Account (LIRA), locked-in pension
  funds or locked-in RRSPs.
• LIF may also be purchased with pension funds if
  an individuals pension plan has been amended to
  permit the purchase of a LIF.

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K. Hartviksen
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RRIFs Vs. LIFs

• RRIFs may only be purchased with funds from
  RRSPs, from another RRIF or pension funds which
  are not locked-in.
• LIFs are purchased with locked-in funds.
• LIFs offered the same broad range of investment
  alternatives as an RRIF.
• To establish a LIF, an individual must be at
  least 55 while with an RRIF there is no age
  requirement.
• Life an RRIF, the LIF holder must withdraw at
  least a minimum amount each year.
• Unlike an RRIF, there is a maximum amount that
  can be withdrawn each year.

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K. Hartviksen
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LIFs Withdrawal Limits

• The maximum amount that can be withdrawn each
  year is determined by formula which applies to
  term-certain annuity to age ninety to the value
  of the fund at the beginning of each year.
• This limit on the maximum withdrawal prevents the
  LIF holder from cashing-out the LIF, unlike an
  RRIF holder who may cash out at any time.
• For this reason, a LIF is sometimes referred to
  as a locked-in RRIF

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K. Hartviksen
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At age 80

• At age 80, in most provinces, the balance of
  funds in a LIF must be used to purchase a life
  annuity.
• In contrast, an RRIF can be structured to last a
  lifetime.

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K. Hartviksen
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Advantage of a LIF

• As an alternative to a life annuity, the
  advantage of a LIF until age 80, lies in the plan
  holders ability to control the investment of the
  funds and the greater flexibility in withdrawals.

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K. Hartviksen