# Life Income Fund (LIF): Definition and How Withdrawals Work

![Life Income Fund (LIF): A government-regulated retirement account offered in Canada that pays a supplemental income for life from locked-in pension assets.](https://www.investopedia.com/thmb/TMwSIEv2kURoqr_ThLf0rmHEAOI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/life-income-fund.asp-final-bcb934ef65fa445cb570bfd4a68c455f.png)

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> **Definition**
>
> A life income fund is a Canadian registered retirement income fund used to hold locked-in pension funds as well as other assets for an eventual payout as retirement income.

## What Is a Life Income Fund (LIF)?

A life income fund (LIF) is a type of registered retirement income fund (RRIF) in Canada that can be used to hold locked-in retirement accounts (LIRAs) and other assets for retirement income.

A LIF is meant to live up to its name, and funds aren't to be withdrawn in a lump sum. Owners must use it to support retirement income. Regular updates to Canada's Income Tax Act set the minimum and maximum withdrawal amounts for RRIFs, which include LIFs, though these limits and other aspects of a LIF depend on the province in which the pension plan was set up. The annual maximums and minimums may account for your balances in other funds and annuities.

Withdrawals from a LIF are taxed as income in the year they are received. In most provinces, you must convert your LIRA to a LIF by the end of the year when you turn 71.

### Key Takeaways

*   Life income funds are a type of retirement income vehicle used in Canada.
*   They are typically created from locked-in retirement accounts (LIRAs) or locked-in registered retirement savings plans (RRSPs), which come from transferring funds out of a workplace pension plan.
*   You must be at least of early retirement age set by law to buy a LIF, and you must be at least of early retirement age or at the normal retirement age to begin receiving LIF payments, and you must begin receiving payments in the year ending after you turn 71.
*   Contributions to a LIF grow tax-deferred, owners can choose their own investments (as long as the investments qualify), and funds within a LIF are creditor-protected.

## Understanding Life Income Fund (LIF)

LIFs are offered by Canadian financial institutions. They are plans for managing payments from [locked-in](https://www.investopedia.com/terms/l/locked-in-retirement-account.asp) pension funds and other assets.

In many cases, pension assets aren't accessible when an employee leaves a firm. These assets, usually called locked-in, can be managed through other plans. However, you might need to move the funds into a LIF once you're ready to begin withdrawals.

Most provinces in Canada require that LIF assets be invested in a life annuity. In many provinces, LIF withdrawals can begin at 50 if the income is used for retirement income.

Once you begin taking LIF payouts, you'll have to ensure you meet the minimum and maximum for each year. Your financial institution for the LIF will have this information, which is updated regularly through Canada's Income Tax Act and has sections that regulate all RRIFs. The [financial institution](https://www.investopedia.com/terms/f/financialinstitution.asp) from which the LIF is issued must give you annual statements for the LIF.

Based on the annual statement, you must specify at the beginning of each [fiscal year](https://www.investopedia.com/terms/f/fiscalyear.asp) the amount of income you 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.

> **Important**
>
> Qualified investments include cash, mutual funds, exchange-traded funds, securities listed on a regulated exchange, corporate bonds, and government bonds.

## Life Income Fund (LIF) Rules

Here are some general rules about LIFs:

*   A LIF has the same minimum withdrawal rules as RRIFs.
*   Withdrawals are considered income and are taxed at your marginal tax rate.
*   In some provinces, you can use your spouse's age to determine the minimum account withdrawals.
*   You must be at least of early retirement age (specified in pension legislation) to buy a LIF.
*   You must be at least of early retirement age or normal retirement date to begin receiving LIF payments.
*   You must begin receiving payments at the end of the year after you turn 71.
*   If you have a spouse, you must get their consent before setting up a LIF, as withdrawals could impact future death benefits
*   Only certain types of investments qualify in a LIF.
*   LIF rules, including withdrawal limits and age requirements, can vary by province. For example, in Newfoundland and Labrador, LIFs must be converted to a life annuity by age 80.
*   Upon death, the balance of a LIF is paid to the spouse, or if the spouse renounces it or is absent, to other heirs. This is consistent across provinces.

## Advantages and Disadvantages of a Life Income Fund (LIF)

Setting up a LIF has several advantages:

*   Like other registered products, contributions grow tax-deferred within a LIF.
*   LIF owners can choose their own investments (as long as the investments qualify).
*   Funds within a LIF are creditor-protected and can't be seized to pay off debt obligations.
*   Contributions can grow tax-deferred until the year after you turn 71.

There are some disadvantages to setting up a LIF. They include the following:

*   A minimum age requirement (early retirement age) before being able to start a LIF.
*   A minimum age requirement (early retirement or normal retirement age) before being able to receive LIF payments.
*   Maximum withdrawal limits prevent you from accessing more income when you need it
*   Only qualified investments can be held in a LIF account.

Advantages of a Life Income Fund

*   Contributions grow tax-deferred within a LIF account  
    
*   LIF owners can choose their own investments (if the investments qualifies)  
    
*   Funds within a LIF are creditor-protected and can't be seized to pay off debt obligations  
    
*   Contributions can grow tax-deferred until the year after you turn 71  
    

Disadvantages of a Life Income Fund

*   A minimum age requirement (early retirement age) before being able to start a LIF  
    
*   A minimum age requirement (early retirement or normal retirement age) before being able to receive LIF payments  
    
*   Maximum withdrawal limits prevent you from accessing more income when you need it  
    
*   Only qualified investments can be held in a LIF account  
    

## What's the Difference in Canada Between Old Age Security (OAS) and the Canada Pension Plan (CPP)?

OAS and the CPP are both government-run pension programs in Canada. OAS is a universal pension that provides a monthly payment to eligible adults age 65 and older, whatever their work history. Eligibility is based on residency in Canada. The CPP is a contributory pension plan that provides retirement, disability, and survivor benefits based on contributions made during an individual's working years. While the amount received from CPP depends on contributions during a career, OAS benefits depend on the number of years lived in Canada after the age of 18.

## What's the Difference in Canada Between a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP)?

TFSAs and RRSPs are both savings vehicles with tax advantages, but they serve different purposes. Contributions to an RRSP are tax-deductible, which means they can reduce your taxable income for the year you contribute. Investments within an RRSP grow tax-deferred until withdrawn. Meanwhile, contributions to a TFSA are not tax-deductible, but any growth, withdrawals, and interest earned within the account are tax-free. TFSAs offer more flexibility since you can withdraw funds at any time without tax consequences, while RRSPs are designed to provide income during retirement.

## Which Country Has the Best Retirement System?

There are different measures, and much depends not just on income and health outcomes but also on the standard of living one can have on that income. The cheapest countries in which to retire include Portugal, Panama, the Philippines, Malaysia, Mexico, Thailand, and Vietnam.

The Netherlands, Denmark, Iceland, and Israel generally rank highly, each with "a first-class and robust retirement income system that delivers good benefits, is sustainable, and has a high level of integrity."

## The Bottom Line

A LIF is a Canadian RRIF designed to provide retirement income from locked-in pension funds and other assets. LIFs are regulated by the Canadian government through the Income Tax Act, which sets the minimum and maximum annual withdrawal amounts. These funds can't be withdrawn from through a lump sum and are intended to provide a steady income stream throughout the retiree's lifetime.

To buy a LIF, you have to reach the early retirement age (typically 50) in provincial and federal pension legislation, and you must begin receiving payments by the end of the year after which you've turned 71. The funds within a LIF grow tax-deferred, and the account holder can choose from various qualified investments, such as mutual funds and bonds.

> **Article Sources**
>
> 1.  Government of Canada. "[Income Tax Act ( RSC , 1985, c. 1 (5th Supp.))](https://laws-lois.justice.gc.ca/eng/acts/i-3.3/index.html)."
>     
> 2.  Government of Canada. "[Income Tax Folio S3-F10-C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs, FHSAs and TFSAs.](https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plan-folio-10-registered-plans-individuals/income-tax-folio-s3-f10-c1-qualified-investments-rrsps-resps-rrifs-rdsps-tfsas.html)"
>     
> 3.  Canada Life. "[RRIF Withdrawal Rules](https://www.canadalife.com/investing-saving/retirement/registered-retirement-income-funds-rrif/rrif-withdrawal-rules.html)."
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> 4.  Government of Canada. "[Income Tax Folio S3-F10-C1, Qualified Investments – RRSPs, RESPs, RRIFs, RDSPs, FHSAs and TFSAs](https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/series-3-property-investments-savings-plan-folio-10-registered-plans-individuals/income-tax-folio-s3-f10-c1-qualified-investments-rrsps-resps-rrifs-rdsps-tfsas.html)."
>     
> 5.  Government of Canada. "[Canada Pension Plan](https://www.canada.ca/en/services/benefits/publicpensions/cpp.html)."
>     
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> 7.  Superintendent of Financial Institution (Canada). "[Life Income Funds](https://www.osfi-bsif.gc.ca/en/supervision/pensions/administering-pension-plans/guidance-topic/life-income-funds-restricted-life-income-funds-variable-benefits-accounts)."
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> 8.  Government of Canada. "[Pensions](https://www.osfi-bsif.gc.ca/en/supervision/pensions)."
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>      
> 11.  Government of Canada. "[Registered Retirement Income Fund](https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/registered-retirement-income-fund-rrif.html)."
>      
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> 13.  Government of Canada. "[Tax-Free Savings Account](https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4466/tax-free-savings-account-tfsa-guide-individuals.html)."
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> 14.  Group Enroll. "[Life Income Fund (LIF) – How It Works?](https://groupenroll.ca/life-income-fund-lif/)"
>      
> 15.  U.S. News & World Report. "[The Cheapest Places to Retire Abroad on $1k a Month](https://money.usnews.com/money/retirement/baby-boomers/articles/the-cheapest-places-to-retire-abroad-on-1-000-per-month)."
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> 16.  Mercer. "[Mercer-CFA Institute 2023 Global Pension Index](https://www.mercer.com/assets/global/en/shared-assets/global/attachments/pdf-2023-mercer-cfa-global-pension-index-full-report-11-09-2023.pdf)."