What is a Life Income Fund - LIF
A life income fund (LIF) is a type of registered retirement income fund (RRIF) offered in Canada that is used to hold pension funds and eventually payout retirement income. The life income fund (LIF) cannot be withdrawn in a lump sum. Owners must use the fund in a manner that supports retirement income for their lifetime. Each year's Income Tax Act specifies the minimum and maximum withdrawal amounts for LIF owners, which takes into consideration the LIF fund balance and an annuity factor.
BREAKING DOWN Life Income Fund - LIF
Life income funds are offered by Canadian financial institutions. They offer individuals an investment vehicle for managing the payouts from pension fund assets. In many cases, pension assets managed in other investment vehicles may require conversion to a life income fund when the owner is ready to begin taking withdrawals.
Life income fund payouts are determined by a government formula. Most provinces in Canada require that life income fund assets be invested in a life annuity. In most provinces LIF withdrawals can begin at any age as long as the income is used for retirement income. Once an investor begins taking LIF payouts they must monitor the minimum and maximum amounts that can be withdrawn. These amounts are disclosed in the annual Income Tax Act. Minimum withdrawals are based on the formula for registered retirement income funds under the Income Tax Act. The maximum LIF withdrawal is the larger of two formulas both defined as a percentage of the total investments.
The financial institution from which the LIF is issued must provide an annual statement to the LIF owner. Based on the annual statement, the LIF owner must specify at the beginning of each fiscal year the amount of income he or she would like to withdraw. This must be within a defined range to ensure the account holds enough funds to provide lifetime income for the LIF owner.
Life Income Fund Management
Life income funds are offered by many institutions in Canada to support retirement distributions for investors. Below is a list of companies offering life income funds with some details on each company’s product.
Sun Life Financial – Offers investors multiple options for LIF investing including insurance guaranteed investment contracts, mutual funds, segregated fund contracts and more.
Canada Life – Allows for conversion of registered pension plan, locked-in registered retirement savings plan or locked-in retirement account assets. Facilitates payment withdrawals for retirement income.
Canadian Imperial Bank of Commerce – The Canadian Imperial Bank of Commerce offers a LIF daily interest savings account. Helps to facilitate retirement distributions. Allows investors to earn daily interest on their account investments.