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Financial planning and retirement planning are like peanut butter and jelly — you can’t really have one without the other. It’s great to have an overall idea of what you want retirement to look like, but it’s probably not going to happen without some money in your pocket. Even if your world doesn’t revolve around the mighty dollar, you still need to maintain certain income streams to survive.

Those income streams can become more difficult to come by in retirement. This is where that marriage of financial planning and retirement planning comes into play. A lot of retirees have a Registered Retirement Income Fund (RRIF) for that very reason. While this is a popular retirement fund option among Canadians — there are actually different types of RRIFs to choose from as well.

Hands up if you’ve heard of a Life Income Fund (LIF)? If you haven’t, you’ve come to the right place. We’re going to tell you what it is and how you can use it as a viable retirement fund option. So grab a seat because class is now in session. Welcome to LIF 101: An Introduction to Life Income Funds.

What Is a Life Income Fund?

A Life Income Fund, also known as a LIF, is a specific type of RRIF. The basic premise behind a LIF is simple. They’re generally designed to hold pension funds and payout retirement savings over a set period of time. The money in this kind of fund cannot be taken out all at once and is meant to last for “life” in retirement.

It’s quite similar to a traditional RRIFs in that regard. A LIF takes your pension funds and retirement savings and transforms them into regular income.

This is where your previous retirement planning becomes critical. Having a strong understanding of how much you need on a regular basis will help set up a LIF that works best for you. They’re available in all provinces except for Prince Edward Island and Saskatchewan.

How Does a Life Income Fund Work?

LIFs can be found at a variety of financial institutions in Canada. Like an RRIF, you can put money into different investments such as bonds, mutual funds, stocks, and so on. This gives you full autonomy over your investments. You still have total control over savings and make all your individual investment decisions.

The regular LIF payouts you receive are determined by a government formula that decides the maximum and minimum payments you’ll receive. Again, there’s no option to receive a lump sum of cash. You can also start your LIF payments whenever, with the caveat that the payments are supporting your retirement income. The majority of provinces also require purchasing an annuity with remaining LIF assets by the time you turn 80.

There’s also some flexibility when it comes to how and when you want your LIF paid out. You can choose a maximum or minimum payment schedule or a more level stream of payments. You also have the ability to receive your LIF on a monthly, quarterly, semi-annual or annual basis.

Not sure if a LIF is right for you? Get in touch with us today. Our experienced team of financial advisors are here to help with all your financial planning and retirement planning needs.