Retirement planning in Canada or in other nations is a crucial task to undertake at an early stage of your life. It can be tough, but trust me, very rewarding. You must be wondering how the LRSP, LIRA, PRIF, and LIF come into your financial planning for retirement – the work-free phase of your life. Moreover, many get confused about the full forms of these different variations of letters, which, well, hinders their knowledge about it even more.
So let’s start with their full forms.
- LIF: Life Income Fund
- LIRA: Locked-in Retirement Account
- LRSP: Locked-in Retirement Savings Plan
- PRIF or PRRIF: Prescribed Registered Retirement Income Fund
- LRIF: Locked-in Retirement Income Fund
- RLIF: Restricted Life Income Fund
Retirement planning in Canada without the mention of these accounts is incomplete. You can further simplify their meaning by correlating them with each other. For example- LIRA and LRSP with LIF or RLIF, or RRSP with RRIF.
This article will do a deeper assessment of all of these terms and help you keep up with your financial goals and secure your life after retirement.
RRIF and RRSP (Registered Retirement Income Fund and Registered Retirement Savings Plan)
As you reach 71 years of age, you have to follow through by taking 1 of the 4 actions with your RRSP accounts. These include:
- Purchase an annuity.
- Transform RRSP to RRIF.
- Cash out your funds.
- Or perform a combo of the above-mentioned step.
RRIF comes with a steady income stream. There is a minimum amount imposed on the withdrawn limit but no maximum limit, so you can withdraw as much as you like.
LRSP and LIRA (Locked-in Retirement Savings Plan and Locked-in Retirement Account)
Once you are free from your employer but you are still not of the retirement age, the pension that is collected over time can be given to you as cash if you have not locked it as per the small benefit rule. Or, this amount will go to your LRSP or LIRA account.
The thing that plays a pivotal role in this is the age that you are of currently. That is because, for most of the provinces, 55 is the standard pension age, except for Alberts it is 50.
Hence, people younger than 55 will have to transfer their accumulated pension to the LIRA or LRSP if they want it to grow over time without being imposed with taxes.
Most people should take into consideration of their retirement planning in Canada that they cannot withdraw these funds before they retire. However, that also depends on the province in which they reside, in that case, the legislation might allow some degree of flexibility.
Difference Between the Two
A difference that stands out between LIRA and LRSP is that the former is governed by provincial legislation, while the latter is looked after by federal legislation. Hence, you are allowed to transfer your employer-sponsored plan which is provincially regulated to the LIRA, and for federally regulated plans, it is LRSP.
On the other hand, the LIRA and LRSP also have uncanny resemblances to the RRSP, except, these funds are prohibited from additional contributions as they are locked.
However, just like you can control the RRSP, you can control these too because these are your investments they are holding eventually. Hence, as you reach 71 years of age, you have to turn your LRSP and LIRA into a combo of the account mentioned below:
- Life annuity
- Locked-in retirement income (LRIF)
- Life income fund (LIF)
- Restricted life income fund (RLIF)
- Prescribed retirement income fund (PRIF or PRRIF)
LIF and LRIF (Locked-in Retirement Income Fund and Life Income Fund)
The differences in LIRFs and LIF are.
- LRIF maximum contribution limited calculation is different from LIF.
- LRIFs are only for people in Labrador and Newfoundland and are hence relevant for the retirement planning in Canada for people residing there.
These two accounts are also similar in many aspects to the RRIF and help create a steady pension stream. Like an RRIF, there is a minimum withdrawal limit that you need to oblige yearly, and the income that comes from it is also tax-sheltered unless it is taken out.
Here are the main similarities between the two.
- You also have a maximum limit that is allowed to be withdrawn every year.
- LIF can only contain the locked-in pension fund which is not relevant for an RRIF.
- Once you reach 80 years of age, you have to transform your LIF into an annuity in Labrador and Newfoundland. But the same is not applicable for LRIF.
RLIF (Restricted Life Income Fund)
Including this in the retirement planning in Canada is inevitable as an RLIF allows people to move 50% of their pension to the RRIF or RRSP. This is for the pension of retirees who are federally regulated and hence they have the right to transfer their pension income from LIF or LRSP to RLIF.
The close connection of RLIF, LIF, and LRIF is that all three are imposed with minimum and maximum withdrawal limits. These limits are decided on the basis of age, pension plan value, and CANSIM rate for you.
PRIF (Prescribed Registered Retirement Income Funds)
The RRIFs of Saskatchewan and Manitoba are regulated by the provincial pension regulation. Hence, the plan is called PRIF and it gives the retirees much more liberty with their pension funds. Their age should be 55 in order to buy a PRIF.
Moreover, this is also limit-free like the RRIF and you are not subjected to minimum withdrawal value or the need to transform it to an annuity when you reach 80. There is also no maximum limit like the LRIF or LIF. You can move your pension funds from LIRA, LRIF, LIF, PRIF, or a Saskatchewan Pension plan.
This insurance type renders an income to the holder of the policy for their lives. You can also convert your LIRA and LRSP into this.
When you pass away, your benefits will be transferred to your spouse unless he/she waives them in writing.
There are a lot of factors involved in retirement planning in Canada, and with so many options available, it can get chaotic to settle on one. You should put your mind to it, find what applies to you with ample research, and create a great plan for your retirement future. All the best!