Trapped in a LIF

Q – My husband is 78 and the pension portion of his money is now in a life income fund (LIF). We were told when his money was transferred into the LIF that when he turned 80 the money would have to go into an annuity. This makes us very unhappy because, as we understand it, the money is in effect no longer ours, but the life insurance company’s in exchange for a life income.

We have recently been told by our broker that we do not have to transfer our money to an annuity but can put it in a “Locked in Retirement Income Fund” or “Life Retirement Fund” (I’m not exactly sure of the term) which would allow us to keep control of our money albeit with the minimum and maximum withdrawal restrictions that we now have with the LIF.

I am completely confused and am hoping you can clarify this situation for me. – K.G.

A – The correct term is life retirement income fund, or LRIF for short. Several provinces now offer this option to people with locked-in accounts, as well as the traditional LIF.

You are correct – if you have a LRIF, you do not have to convert the assets to an annuity at age 80. T plan keeps going. The minimum annual withdrawal requirements are the same as for a RRIF or LIF. However, the maximum amount you may take out in any given year is determined by a different formula. This can vary from province to province, but it is typically based on the previous year’s investment return. So if a LRIF earns, say, $20,000 in 2001, that would be the maximum withdrawal allowed in 2002.

Not all provinces have approved LRIFs, so you need to check the status and the rules where you live. Contact the company that administers the existing LIF and ask them if arrangements can be made to transfer the assets to a LRIF. – G.P.