LIF or annuity?

When the times comes for you to convert your LIRA or Locked-in RRSP into retirement income, you have several options: a Life Income Fund (LIF), or a life annuity.

Let's compare the characteristics of each one. An annuity requires no management on your part (the institution which sold it to you manages it), while a LIF gives you total control of your capital and lets you choose your investments.

An annuity ensures a stable retirement income. You know exactly how much you will receive, which makes it easier to manage your budget. However, this stability provides little leeway if something unexpected comes up or if you want to carry out a project (for example, a vacation or a return to school).

A LIF allows you to withdraw a different amount each time (subject to the legislated annual minimum and maximum). This gives you more freedom so you can take a cruise, help out your children financially or enjoy your favourite hobby.

Stability or flexibility?

Before you decide, you should consider the big picture:

• your investor profile
• your financial needs
• your tax burden
• your age
• your health
• how much money you wish to leave your loved ones

In some cases, it may be best to combine both retirement options; convert a portion of your LIRA/Locked-in RRSP into a LIF and use the balance to purchase an annuity. Or, you can use your LIF to purchase an annuity any time you wish; just remember that once you purchase an annuity, you cannot change your mind.

LIFs under federal jurisdiction no longer need to be converted into a life annuity before the end of the year you turn 80. However, you may withdraw or transfer into your RRIF the entire balance of a LIF under federal jurisdiction at age 90. A LIF is under federal jurisdiction when the money transferred into it originates (directly or from a locked-in RRSP) from a pension fund set up by a company under federal jurisdiction (such as rail and air transport, radio and television, banks).