Life Income Fund – LIF

Asset-Backed Security (ABS)

What does the Life Income Fund mean?

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 possibly pay retirement income. The life income fund cannot be withdrawn in a single payment. Owners must use the fund to support retirement income for their entire lives. The Income Tax Act for each year specifies the minimum and maximum withdrawal amounts for LIF owners, which take into account the LIF fund balance and an annuity factor.

Life Income Fund

Life income funds are offered by Canadian financial institutions. They offer individuals an investment vehicle to manage payments from pension fund assets. In many cases, retirement assets managed in other investment vehicles may require conversion to a life income fund when the owner is ready to start making withdrawals.

Payments from life income funds are determined by a government formula. Most Canadian provinces require that the assets of the life income fund be invested in a life annuity. In most provinces, LIF withdrawals can start at any age as long as the income is used for retirement income. When an investor begins receiving LIF payments, he must monitor the minimum and maximum amounts that can be withdrawn.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 withdrawal from the LIF corresponds to the greater of the two formulas, both defined as a percentage of total investments.

The financial institution from which the LIF originates must provide an annual statement to the owner of the LIF. On the basis of the annual statement, the LIF holder must specify at the beginning of each fiscal year the amount of income he wishes to withdraw. This amount must be within a defined range to ensure that the account has enough funds to provide life income to the LIF holder.

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 product details for each company.

Sun Life Financial: Offers investors several options for investing in a LIF, including insurance-backed investment contracts, mutual funds, segregated fund contracts and more.

Canada Life: Allows the conversion of a registered pension plan, a locked-in registered retirement savings plan or the assets of a locked-in retirement account. 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 facilitate retirement distributions. Allows investors to earn daily interest on investments in their account.

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