What Does Life Income Fund Mean?

A life income fund (LIF) is a type of registered retirement income fund (RRIF) offered in Canada that can be used to hold locked-in pension funds as well as other assets for eventual payout as retirement income. A life income fund cannot be withdrawn in a lump sum.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 RRIFs, which encompasses LIFs. The Income Tax Act’s RRIF stipulations take into consideration fund balances and an annuity factor.

Key Takeaways

  • Life income funds are a type of retirement income vehicle used in Canada.
  • The Canadian government regulates various aspects of life income funds, in particular the amounts that can be withdrawn, which are specified annually through the Income Tax Act’s stipulations for RRIFs.
  • Life income funds are offered by many institutions in Canada to support various types of retirement distributions for investors.

Understanding Life Income Fund

Life income funds are offered by Canadian financial institutions. They provide individuals with an investment vehicle for managing the payouts from locked-in pension funds and other assets. In many cases, pension assets may be held but not accessible if an employee leaves a firm. These assets, usually called locked-in assets, can be managed in other investment vehicles but 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 which applies to all types of RRIFs. Most provinces in Canada require that life income fund assets be invested in a life annuity. In many 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 Once an investor begins taking LIF payouts they must monitor the minimum and maximum amounts that can be withdrawn.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, which provides stipulations pertaining to all RRIFs. The maximum RRIF/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 they 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 a 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.