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Published February 8, 2022
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How a Life Income Fund (LIF) Works for Retirement

A life income fund, or LIF, locks away money from your pension plan fund and provides annual payments during retirement.

Canada has more than a few government-regulated accounts and registered plans to help individuals prepare for retirement.

Some, like registered retirement savings plans, or RRSPs, are generally a good idea for any working Canadian, while others, like Life Income funds, or LIFs, aren’t something everyone will need.

A Life Income Fund, more commonly referred to as a LIF, is a registered account specifically meant for your locked-in pension funds upon retirement. If you transfer pension funds into a Locked-in Retirement Account, or LIRA, you will eventually need an LIF.

» MORE: How much money do you need to retire?

What is an LIF and how does it work?

An LIF is one type of registered retirement income fund, or RRIF, in Canada. An LIF is an account from which locked-in pension funds and other assets can be paid out in retirement.

You cannot contribute to an LIF, it’s just for holding, then withdrawing, money that was held in a LIRA. Funds cannot be taken out as a lump sum from your LIF; there is an annual minimum and maximum withdrawal amounts. The goal is that the account will help support your retirement income for the remainder of your life.

» MORE: Defined contribution vs defined contribution pensions

Who is eligible for an LIF?

Whether or not you should consider an LIF depends less on eligibility and more on need. Only those who rolled locked-in pension funds into a LIRA will eventually need to convert that account into an LIF.

If you have a LIRA, you can choose to transfer it into a LIF as soon as you reach the retirement age specified by the province in which your pension is held. LIRAs must be moved into an LIF by December 31 on the year in which you turn 71.

Nerd tip: In Newfoundland and Labrador your LIF must be converted to a life annuity at the age of 80.

» MORE: How to get retirement-ready

How to withdraw funds from an LIF

LIFs have a number of withdrawal restrictions. Generally speaking, you cannot withdraw a lump sum from an LIF, as there are annual withdrawal maximums.

You are required to withdraw a minimum amount from your LIF account every year. This amount is a percentage of the total account balance and varies by age. The minimum and maximum LIF withdrawal percentages will also vary depending on the province in which you reside. These percentages will change annually as they are specified by the Tax Act.

There are a couple of special specific circumstances in which you may be able to withdraw from your LIF early. These include becoming a non-resident of Canada or being diagnosed with a terminal illness.

» MORE: What you should know about provincial tax rates

LIF rules and tax implications

Like LIRAs, LIFs are tax-sheltered. This means you will only need to pay taxes when you withdraw the funds. Come tax time, the financial institution where you opened the LIF should provide you with proper tax documentation.

Some provinces offer a one-time lump sum LIF unlocking option, for example. This is only available to individuals of a certain age. In this situation, the money from the LIF can be withdrawn as cash (in which case it is taxed) or transferred to an RRSP or RRIF (not taxed).

Also, on top of the annual withdrawals, some provinces will allow an additional withdrawal every year, referred to as temporary income.

Should you pass away with money remaining in your LIF, the balance will be paid to your spouse or, in their absence, your heirs. Some provinces may then allow the beneficiary to transfer it into their own RRSP or RRIF tax-free, but in other cases, they must remain locked and then transfer to a locked-in RRSP or LIF.

If you are unsure of the rules surrounding LIFs in your province, get in touch with a retirement expert at your financial institution or a financial advisor to discuss your options.

LIF pros and cons

There are, of course, both benefits and disadvantages to placing pension funds in an LIF.


  • LIFs are tax-sheltered accounts. You only pay taxes when you withdraw the money, typically in retirement.
  • You can delay LIF income up to age 71, allowing it more time to grow without paying taxes on it.
  • The annual rather than lump-sum withdrawal method of an LIF makes it easier to plan your retirement strategy.
  • LIFs allow you to choose your own investments.


  • LIFs have strict rules about how the account can be used and what investments it can hold.
  • You can’t start an LIF until you reach the early retirement age of the province in which the original pension plan was registered.
  • An LIF’s withdrawal rules can mean you won’t have easy access to all your money if you need it.

LIF alternatives

Canadians with a LIRA also have the option of converting it into a life annuity.

A life annuity is managed by a financial institution whereas you manage the LIF yourself.

And while an annuity is protected from market fluctuations and provides a guaranteed income so you always know how much you will receive, an LIF is an investment account, so its value (and therefore the annual withdrawal amounts) fluctuates with the market.


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