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Rob · Edit
Hi Mark, I am a Canadian citizen working and living in the US with a green card. I have a LIRA from my former Canadian employer that is now held at a bank in Canada. Given my US residency, I was told for many years that I was only able to use my LIRA funds to invest in a GIC. Now I am being told that I can no longer do that. My funds are currently in Cash earning very little. I am 62 years old and plan to retire in 5 years. Are there restrictions on how LIRAs can be invested if you are not a resident of Canada? Is there an option to transfer a LIRA to a IRA account in the US?
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Mark · Edit
Hi Rob,
I am aware of the tax implications, generally, in moving any 401(k) to RRSP – see below – but I’m not familiar of the tax implications of trying to move LIRA funds, even if you can, to IRA.
I do know for a fact, that Canadians can hold more than GICs, etc. in a LIRA. It must be a self-directed LIRA however. Those are available at most Canadian brokerages.
Here is one example:
https://www.td.com/ca/en/investing/direct-investing/registered-accounts/liraYou might want to consider consulting with a U.S. tax accountant specialist to go through your situation with you and help chart a course for account structure in pending retirement. They should be able to provide detailed, personal, tax advice.
Thanks for reaching out!
MarkReply
Larry Chernyk · Edit
Hi Mark,
So once a LIRA has been unlocked and converted to a LIF or RRSPs , can it be locked back up and re-established?
Thx u
LarryReply
Mark · Edit
My understanding is, since I haven’t done it yet myself, once a LIRA is unlocked (it is then turned into a LIF) – 50% unlocked to RRSP and the other 50% is established for the LIF. Basically, LIRA to LIF and unlocking as part of the process is only a one-way ticket 🙂
Hope that helps Larry!
MarkReply
Rhonda Abbott · Edit
Great info, as always!
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Mark · Edit
Thanks very much.
MarkReply
Frank · Edit
Hi Mark,
My bank advisor (TD) is telling me that if I unlock my LIRA to a LIF I have to convert all my US stocks back into Canadian. In other words. I have to sell the US currency held stock and place it back into my Canadian account. Do you know if this is true. I have searched high and low and see that we are allowed to hold US stock in an account. There is no clarity if it has to be in US or Canadian dollars. Please help.
FrankReply
Mark · Edit
Hey Frank,
I can’t offer advice, and I haven’t reserached what all the brokerages do or do not do, but potentially some brokerages don’t have USD-dollar LIFs.
I recall TD HAS USD-dollar LIRAs so they should have USD-dollar LIFs.
https://www.td.com/ca/en/investing/direct-investing/registered-accounts/lif-lrif“When you retire, continue to invest your portfolio in the Canadian and US markets by converting your LRSP or LIRA into a self-directed income fund in Canada.”
I would contact TD Direct Investing directly and ask them: do they/you have USD-dollar LIFs?
The idea of “unlocking” some of your LIRA to RRSP and leaving the rest in your LIF seems smart to me Frank = start the min. income from LIF and put assets into RRSP for longer-term flexibility and tax-deferred compounding.
Keep me posted! 🙂
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Stan · Edit
Hi Mark. I have a LIRA in Ontario, and also a RRIF and an RRSP, all 3 with the same institution. You said:
“In addition, depending on your province, you might be able to “unlock” 50% of your LIRA with no limits. Thankfully, Ontario has that regulation”,
and then “Be mindful you have only 60 days to make any transfer after unlocking with your financial institution”.
So how would that 60 days be applied to my situation Mark? I’m 65 years old, so if I “unlock” half, say 50K of my 100K LIRA , does the money stay unlocked in the LIRA until I ask my institution to transfer it to my RRSP or RRIF?
Or am I required to set up a LIF, then transfer funds from my LIRA first, and THEN within these 60 days unlock up to half of the LIF to a tax deferred vehicle???
Stan
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Mark · Edit
Hey Stan,
Thanks for your readership. I recall you will need to apply.
https://www.fsrao.ca/consumers/pensions/pension-unlocking-non-hardship“You are at least 55 years old and the total value of the funds in all of your locked-in accounts is less than 40% of the Year’s Maximum Pensionable Earnings (YMPE)”
“The Year’s Maximum Pensionable Earnings (YMPE) is a dollar amount set each year in relation to the Canada Pension Plan. The YMPE determines the amount a person is eligible to withdraw or transfer from a locked-in account. A new YMPE is set every year. The YMPE for 2021 is $61,600.”
Your financial institution should be able to help you out!
If you can’t unlock all if it, then in Ontario, 50% can be unlocked one-time and go into the RRSP. The rest will be set-up as a LIF.
Also, Contact the regulator of your pension plan to determine what you can do with your LIRA – don’t rely solely on information from your financial institution. In Ontario, that is these folks:
http://www.fsco.gov.on.ca/en/pensions/lockedin/Pages/default.aspxNot tax advice of course!! 🙂
MarkReply
What a timely post for me!
In Alberta, I can unlock my LIRA based on financial hardship. I’m 60 and have been disabled and not earning taxable income for 2 years. I do, however, receive private insurance nontaxable benefits. CPP has not yet approved my long-term disability benefits application.
My question is, what is the best strategy for unlocking? Minimal or maximum amounts (for which I’m taxed)? In Alberta, I have a choice of unlocking any minimal amount up to $33,000+/-. What is the best strategy? Should I unlock the maximum amount (in Alberta I can transfer into an RRSP and yes, I have room.) or should I withdraw minimal amounts? I have almost $100,000 in my LIRA
Many thanks in advance. I have questioned Qtrade and Wealthsimple on this and neither has been able to advise.
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Mark · Edit
Great stuff Kate, re: article timing.
I can’t offer any advice of course, totally DIY investor here and not a CPA or CA but….I can say, that with some clients and folks that I know, they have decided to unlock as much as they possibly can (when they can) and move assets into RRSP to the extent possible.
The reasons for this (I assume??) is two-fold:
1. Getting rid of any LIRA values = reduces account complexities with LIRAs to LIFs on top of RRSPs to RRIFs, TFSAs, CPP, OAS, etc. for any individual to manage. Therefore, the less accounts, the more consolidation occurs, the easier the tax and retirement draw down planning can be.
2. LIRAs to LIFs are a one-way ticket I believe. Meaning, once all or some of the LIRA to LIF is established, you have to take the money out. With assets inside the RRSP, you can choose to set-up a one or more RRIFs – or simply take RRSP withdrawals as you need them vs. setting up a RRIF. You are only forced to “RRIF” in the year you turn age 71. Meaning, you don’t need a RRIF to take the money out an RRSP. You do however need to establish a LIF if you want your money out. So, more financial flexibility managing RRSP and RRIF assets or any combination.I can’t speak to the maximum or minimim amount you should unlock since that is a very personal decision based on your own needs.
Since you live in Alberta, although they cannot offer any advice, the folks at the provincial pension level should be able to tell you what the rules are on unlocking for sure:
https://www.alberta.ca/pensions-interpretive-guidelines-rates-capsa.aspxI don’t think any discount brokerage will be able to provide any financial advice as well – so likely don’t count on Wealthsimple or Qtrade for that 🙂
All the best with your decision Kate.
MarkReply
Kate · Edit
Thanks, Mark, I appreciate your quick response!
I tend to agree with unlocking as much as possible IF possible however the tax rate starts at 20% for unlocking $5,000 to $15,000 and after that the tax rate is 30%. Since I have no taxable income at this time I’m trying to make the best decision since I won’t be able to ‘write’ that tax off.
See AlsoTurkey – KnowYourCountryUnited States Imports from TurkeyHow to buy an ETF: Frequently asked questionsHow to Buy US Stocks in TurkeyI wonder if taking the maximum is worth paying the extra 10%…and having said that, I’m not sure there’s a ‘right’ answer. I invite everyone’s and anyone’s opinion on this.
Thanks again, Mark.
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Mark · Edit
No problem of course Kate. You might want to check out this case study about $120,000 in a LIF. Could be relevant and given you have no taxable income at this time, might be the best time to unlock although talking to an accountant could be good too!
“Some people may want to access locked-in funds because they need the money immediately. Others may just want to minimize the amount of money that is subject to maximum withdrawal restrictions. If your LIRA is small, unlocking a portion may mean the remainder is small enough, or will be in the future, to unlock it under the small balance limits for your province of residence.”
re: small balance:
I recall individuals 55 or over with LIF holdings of less than 50% of the Yearly Maximum Pensionable Earnings (YMPE, 50% = $27,450 in 2016) will be able to wind up their accounts with the option to convert to a tax-deferred savings vehicle, such as an RRSP or RRIF…Reply
Kate · Edit
Thanks again, Mark.
To be on the safe, I’m contacting CRA because it’s the tax implications I’m worried about..
Great blog! Very informative! Thanks!
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Mark · Edit
Good call! 🙂
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Tom · Edit
Thanks for the post Mark, very helpful information.
Questions for you, I currently have an RRSP and a LIRA, 65 years old and still working.
Eventually when I convert the RRSP to a RRIF and the LIRA to a LIF :
– can they be merged into 1 account ? (either a RRIF or a LIF)
– if not, the yearly minimum withdrawal amount (lets say 4% at 65) , is it 4% yearly against each
account or 4% from one of them ?
– if 4% from only one of them, is it up to me which one I draw from first ? and once I choose lets
say LIF, I have to continue doing LIF until its depleted, then move on to next ?Thanks very much for any help you can give me
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Mark · Edit
Thanks Tom, nice to hear from you!
1. Can they be merged? I believe so, but really under special circ*mstances only I recall. I would need to confirm with the pension regulator though just to be sure.
Ontario:
https://www.fsrao.ca/consumers/pensions2. Yearly mins. apply to RRIFs and LIFs as they apply to each account you own. The government wants money back in taxes deferred 🙂
3. You can turn on the RRIF or LIF at any age….but….it’s mandatory to convert from an RRSP to RRIF or LIRA to LIF in the year you turn 71. The RRIF income can occur in the following year. You must also turn your LIRA or locked-in RRSP into a LIF or life annuity no later than December 31 of the year in which you turn 71 years old.
Now, what one do you convert for income? Is one better or the other? I personally find a RRIF more flexible than a LIF. You might want to check out this post as well. “Unlocking” your LIRA is a good idea. 🙂
https://www.cashflowsandportfolios.com/what-is-a-lira-everything-you-need-to-know-about-liras-and-lifs/Happy to discuss further, not advice, just some ideas!
MarkReply
Melissa · Edit
Thanks for the prompt and very helpful reply Mark.
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Mark · Edit
Good stuff.
MarkReply
Melissa · Edit
Hi Mark, I am 55 and have a LIRA in Ontario but live in BC. When I retire at 60, if I want to transfer 50% of my LIRA to my RRSP can i do that only if I have that room left in my RRSP? I.E. if i want to tranfer $20,000, do i need to have a RRSP contribution limit of $20,000+.?
I did first read the linked articles on Ontario LIRA rules, but I couldn’t find this info.
Thanks – MelissaReply
Mark · Edit
Hey Melissa,
Not advice, but if now 55 and have a LIRA – for any “unlocking” rules check 1) with financial institution as well as 2) with the provincial legislation. For starters, I recall pensions/LIRAs are provincially and federally regulated and depends on the province the pension/LIRA exists but you might wish to fact-check on that.
As for the transfer, you can only “unlock” 50% from Ontario but my understanding is you do not need RRSP contribution room to do so.
Here is a reference that supports my assumption:
https://www.taxtips.ca/pensions/rpp/unlockingrpp.htm“Individuals 55 or older will be entitled to a one-time conversion of up to 50% of holdings value into a tax-deferred savings vehicle with no maximum withdrawal limits. If the funds are transferred to the locked-in funds owner’s own RRSP or RRIF, this does not require contribution room, and the owner is not taxed until the funds are later withdrawn from the RRSP or RRIF.”
Hope that helps your decision but do talk through any tax considerations with a fee-only financial advisor when in doubt.
Thanks for being a fan,
MarkReply
Gerry Surtees · Edit
Why would a financial advisor place funds in a LIRA. The retired person just retired after 35 yrs. with a DB plan and has no pension assets from anywhere else. Am I missing something here as far as a investment strategy?
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Mark · Edit
Well, I had to choose a LIRA for my former DC pension since I couldn’t leave the money with my former employer. LIRA are not for everyone to your point Gerry!
Mark
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Leigh · Edit
Unfortunately most of this is very new to me and I find myself in a position of having to move my pension into a LIRA, but I don’t have a clue what institution to do this with? I am worried about fees, penalties if I move it out by using the LIRA to buy service in my new pension plan within the next 6 months ( if that’s s good idea) etc. Any recommendation on what institution to use? A major bank? Questrade? Desjardin (my insurance agents suggestion) etc?
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Mark · Edit
Happy to provide more clarity or details Leigh. I could potentially use your questions for a blogpost. I can’t offer direct advice of course but I can help you consider some options. Feel free to email me via my Contact page. All the best.
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Tracey Walsh · Edit
Hi my name is Tracey from Manitoba.
Thanks so very much for your forum.
I just turned 57.When I was 32,my spouse was 33. He died spraying round up to kill our weeds. He accidentally inhaled. In a corner by fence. Most rose up and in my opinion it wast a detriment. He was gone almost immediatly.
I got his Pension 10k. Had to be a LIRA due to my age. I have had it with Mc Kenzie financial. It’s matured and needs to be transferred.
Should I transfer it to a bank or an investment company? I live near Selkirk mb. It has doubled. But it’s been over 20 yrs I am a bit dissapointed. My advisor split the investments into 3.
I do not feel I have adequate knowledge to know what to do and where. So I do need an advisor.
I would like to take out say 6/8 k
I need a vehicle badly.
I also have The DTC tax status.I am just resubmitting a new one.
I receive a combination Survivor and disability From CPP
Any info that you can give me is very much appreciated.
Thank You Tracey WReply
Mark · Edit
Very sorry to hear of your loss Tracey.
I can’t speak to your specific needs but my partner and I do have a service whereby we can crunch some projections. We cannot offer any advice on specific investments but we can offer what the financial math says based on your inputs. Hit us up with an email here if you wish:
https://www.cashflowsandportfolios.com/contact-us/All the best and take care,
MarkReply
Jimmy · Edit
https://www.gov.mb.ca/finance/pension/pdf/bulletin4.pdf
The above would suggest she has a small balance for Manitoba re $20k. Based on DTC + basic exemption and the need for a car, wouldn’t it make sense Mark to suggest she go ahead w unlocking, take the $6-$8k she said she needs re car and put the rest into a rrsp and then take the rest over the next couple of years ($6k/yr), if she doesn’t need the cash, take it as an in kind transfer to a non registered and then on the same day transfer to a tfsa (no cap gain on the transfer)?
Mark, also, a minor clarification your LIF table suggests access at age 50. In Ontario you can only actually access funds in the calendar year after you turn 55. (Ie. Convert to a LIF when you turn 55, convert 50% to a RRSP and then start drawing on the LIF the following January). Jim
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Mark · Edit
Great comments.
First, very nuanced table. For MB, for example, LIF funds governed by Manitoba’s regulations may be withdrawn at any age to provide retirement income up to the maximum amount allowed by the LIF. The funds may not be withdrawn as a lump cash sum, at any age.
https://www.gov.mb.ca/finance/pension/faq/specific/lif.html
So, based on the table, I would agree it’s somewhat misleading since depending on your province LIF withdrawal rules may or may not apply.
As you might know, I live in Ontario, and yes, age 55 is the min. age and I can “unlock” 50% of my LIRA – which I intend to do.
“Thankfully, here in Ontario where I live we have that feature in the regulation – a feature I intend to take advantage of myself!!”
🙂
In the case study, I think the financial advisor at the time was thinking about/sharing asset location ideas and not just the timing feature of when to take LIRA > LIF income.
Personally, I would take out any $$ not needed at age 55, get that LIF gone sooner than later, and move any money not needed for spending into the TFSA every year.
Thoughts, Jim?
MarkReply
Tom · Edit
Hi Mark… I love your simple to understand posts. What suggestions do you have for someone 63 yrs old with a small LIRA (less than$12k) from bankrupt Sears that is seeing it erode monthly from the fees charged by the trustee Sunlife?
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Thanks Tom. I strive to write clear, easy-to-read posts in plain language.
Hummm, small LIRA eh? Depending on your investing goals of course I would consider a low-cost CDN ETF and use other products to invest abroad in your RRSP and TFSA for U.S. and international diversification. That would be my hunch. Welcome to reply to let Owen and I know more details.
Not advice mind you just some things to think about!
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Hi Tom, sorry for the late reply, but if its a small LIRA you can unlock it via the “small balance unlocking” rule and roll it into your RRSP. This will make it easier to lower your fees and make management easier in the future because you have one less account.
More details (for Ontario): See bullet #2
https://www.fsco.gov.on.ca/en/pensions/lockedin/Pages/nonhardshipunlocking.aspxReply
My biggest problem with my LIRA is that it holds 4 mutual funds at Manulife that mostly do OK but over the past two years I’ve gotten away from mutual funds due to the fees and I now DIY and buy ETFs. I’ve considered opening a LIRA at Questrade, transferring the mutual funds over, and investing in what I want. Lower MER, DRIP, and growth.
What stops me? Risk factor. Aside from a couple of GICs, this is my low risk investment. The financial planner I had at the time invested in a program that guarantees my initial investment will always be intact if something bad happens and the funds head south. It can never go lower than my initial investment – I’m sure someone here more knowledgeable will know the technical name for this type of program.
I thought maybe I can unload the two lowest performers and send them to a new LIRA I create at Questrade and buy ETFs, and leave the two better performing mutual funds where they are. My current financial planner who took those over when my first planner retired, says its an all or nothing plan. I can’t break up the initial investment and have the ones I leave with Manulife still getting that guarantee. That guarantee no longer applies if I break up the set so to speak. Does anyone know if that sounds like it could be true? I’d hate to think he’s lying to me, but I know financial investors aren’t looking out for the best interests of low income single women because they don’t make much commission from us. Right now I’m annoyed because one of the lagging mutual funds I sold in October and purchased another one that looks like a better plan for growth, isn’t showing on my year end statement. I can buy/sell from a limited selection of funds within the plan I have. And the financial advisor hasn’t gotten back to me. Not even as much as he’s looking into this for me. For all I know Manulife screwed up and didn’t complete the transaction, but the advisor should have still been on top of it and noticed it didn’t go through.
It’s been 10 years in this LIRA.
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Hi Cheryl, I’m sorry to hear that your advisor isn’t getting back to you, it’s hard to say what the best course of action is without knowing what your advisor currently has you invested in, your goals, your risk tolerance etc. My advice would be to seek out an advice-only financial planner, someone who isn’t compensated through selling investments/insurance etc. It might cost you a little bit up front but you’re going to get much better service and advice. Here is a list of advice-only planners in Canada (you’ll find me there too).
https://www.adviceonlyplanners.ca
Most advice-only planners do a free discovery session. I always do a free discovery session with clients to make sure we’re a good fit, if you like we could do a discovery session together and talk about the specifics of your situation and see what options you may have. Just complete the discovery questionnaire and I’ll send you a link to book a meeting.
https://www.planeasy.ca/start-discovery/
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Thanks for your detailed comment.
Only you know what is best for you Cheryl but I suspect you can do better!
Have you considered a meeting with your advisor? Forcing the issue a bit and talking about switching to lower-cost products/ETFs and moving your LIRA? I think that seems warranted. I would imagine any financial institution (e.g., Questrade although not just them) would LOVE to have more assets under management and could help you out.
I suspect you might be into segregated funds although I can’t be sure.
Overall, sounds like you have some motivation to change things and learn more about what you’re really invested in and why. That’s great and I encourage you to push on – we’ve all had to do that at some point and we all learn what’s better for us over time 🙂
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Mark · Edit
I have a LIRA with sunlife. $100K of equity funds split 50/50 US/CAN index. Unfortunately with Sunlife the MERs are still robbery. Does anyone know if I can open a self-directed LIRA at my Waterhouse brokerage and transfer the balance there from SL? I moved my Sunlife RRSP years ago to avoid the fees, now the LIRA needs the same. Mark
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Lloyd · Edit
I moved my LIRA from National Bank to TDDI. TDDI did all the work and it took time (quite a bit actually) but it did work. I didn’t have any proprietary products though. I have no knowledge about Sunlife products and how that might have issues (fees).
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You got it Lloyd, you can usually move such accounts between institutions and those institutions are only more than happy to get your assets under management.
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Hi Mark, as Lloyd mentioned you can absolutely move your LIRA to another financial institution (and probably save yourself a couple thousand per year in mutual fund fees). Usually the institution you want to move the money to will help with the forms and manage the transfer. It’s ideal to transfer investments “in-kind” (meaning nothing gets sold/re-bought) to avoid being out of the market during the transfer. After the transfer is complete you can re-allocate your investments in the new account to less expensive options without any time out of the market.
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I’ll let Owen provide more details/examples from his experiences but I see no reason why you can’t move around LIRAs from one institution to another. Meaning, just like you can transfer a mutual fund RRSP account into a self-directed RRSP account to hold more than funds (stocks, bonds, GICs, etc.) you can do the same with a LIRA.
I know for a fact a few investors who have a self-directed LIRA at TD Direct Investing, RBC Direct, BMO InvestorLine, etc.
Talk to the institution you want to transfer to first, about your needs. They are usually MORE than happy to help, expedite transfer forms and if you ask them – waive any transfer fees. You don’t get what you don’t ask for (nicely of course)!
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Kathy · Edit
I would love to self direct our funds, after a closure of a co. that my husb. was with for 27yrs , (this was 10 yrs ago) my sister, a fin. advisor took over our accts. in 10 yrs and from what ive read, it has been a good 10 yrs, we have not had the gain, as I see it now, that we should have. My sister passed away, and I have just learned of the fees, that have been charged as, we just rec’d our annual statements, with fee statement attached, I havent seen a fee statement in the last 10 yrs. Our funds are currently with an advisor, we know nothing about and I would like to learn how to self direct.
LIRA s and RRSP s are what we have, approx 400k.Reply
Hi Kathy, there are some great resources out there to help transition to a DIY portfolio. Check out the Canada Couch Potato model portfolios. Often a DIY investor is their own worst enemy so my suggestion is to make a clear investment plan that includes how much you’ll contribute each month, what your target asset allocation is (and why) and also when you’ll rebalance your portfolio to get back to your target asset allocation (ideally at least 1/year and at the same time each year). Often DIY investors don’t follow their plan, or don’t have a plan at all, at this can lead them to lag the market returns by 0.3% to 1.5%+.
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kathy · Edit
Thank YOu Owen, it would not be my intention to add anything, I simply want the funds in there to grow, I have been considering taking funds from LIRA, or managing them, with TD Drips, just not sure where to start
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Paul · Edit
Self directed my small lira like my RRSP years ago. More then tripled in value, in time. Switched over to lif, from which I take out about 4% per year. So far, has no decrease in value, and pays for electricity and more!
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Well done Paul. I think for some investors, a self-directed LIRA is the way to go as long as they understand how that LIRA fits into their plan and select products to go with that plan.
I hope to have ENB dividends pay for my natural gas bill for life in the coming years 🙂
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kathy · Edit
Paul, self direct is where I want to go with my LIRA , MER from investments this year is $1300. so that s enough. Maybe you can help me, I need to know how to self direct
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I think self-directed investing has HUGE benefits Kathy. I can consider writing a post about that but I also have some content on this site as well.
https://www.myownadvisor.ca/self-directed-investing-101/https://www.myownadvisor.ca/reader-questions-what-are-you-saving-for/
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RBull · Edit
Good primer and good points by both of you in the case study.
I was in a company DC pension plan for a number of years that I rolled into a LIRA when I left their employ about 15 years ago. It is a provincial plan not eligible for unlocking up to 50%. A year ago I converted this to LIF to begin minimum withdrawals in my late 50’s. I established this because I had been withdrawing many times this amount from my RRSP the previous 3 years and likely will continue to do so, and I knew this minimum amount was a sure thing I would want and need to keep. Now my RRSP withdrawal is a little less.
I consider all of our investment assets as one portfolio in context of allocations. My LIF is approx 90% fixed income now (GICs & corp bonds), while my much larger RRSP is mostly equity. With my LIF I have been wthdrawing CDN equities in kind to my unregistered plus a little cash, and requested a basic amount of withholding tax even though minimum withdrawals doesn’t require it. This keeps me out of installment territory that I want to avoid.
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I think it’s very smart to consider all of your investment assets as one portfolio in context of allocations….it makes it more challenging for sure to ensure certain assets are in the right spot, in different amounts, but it can be more tax-efficient this way.
I intend to do something similar: around age 55 (when I can in Ontario); withdraw money to spend and/or use to build up my TFSA every year thanks to TFSA contribution room. Time will tell! Thanks for your insights as always.
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RBull · Edit
Thanks. For a balanced investor this is the only way to fly. Trying to keep the same allocation account by account is possible but much more difficult and potentially very tax inefficient. In the withdrawal phase it certainly takes some thinking and a little crunching of numbers to keep the desired balance, along with staying tax efficient.
Seems like a good idea for you to get moving on that account to draw down registered in early retirement and feed the TFSA. For some people this is a good strategy. As you know I’m doing this feeding as well.
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I love the idea of drawing down RRSPs/LIFs faster than necessary and using that extra money to maximize TFSA contribution room each year. This is especially useful if you can stay within the same tax bracket. It makes the money more accessible and minimizes the tax bill on your final estate.
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RBull · Edit
Absolutely Owen. I can say its a little challenging though to accept paying a little more tax than you “have” to, but in the long game it’s definitely right for us.
I had a relatively high tax rate in all my working RRSP contribution years (age 22-47) and now am at a lower bracket. So that works well on net benefit of RRSP as I had hoped (so far), and then taking this lower taxed money and reinvesting 1. TFSAs 2. unregistered (when possible) makes sense to me, at least for another 5-10 years, when govt benefits may start and a little later RRIF mandated.
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Joe · Edit
At 54, I would still like to invest in ETF’s, but which ones? $250,000 available, the rest 400k is in individual stocks. Could someone recommend? Kids are 25 and 23 – which ETF’s should they be looking at?
ThanksReply
Hey Joe,
I can’t offer direct advice but I think if you like ETFs, you can check out my ETFs page that identifies many low-cost, growers and income-oriented funds to start your research.
https://www.myownadvisor.ca/etfs/I think for young adults, you can also consider some all-in-one funds for them. Nothing really to worry about except add money over time – just contribute and let the ETF in terms of rebalancing, asset allocation, etc. do the work for them.
Check out my Deals page – I have promo codes to invest with BMO (no obligation of course) but it’s an option for you to consider.
https://www.myownadvisor.ca/deals/Reply
Charlie · Edit
Mark/Owen,
Can you give more details on the 50% conversion of the LIRA to RRSP? Is this only a onetime decision and only at time of conversion to LIF or can you convert 50% before you convert to LIF? My wife has a LIRA and based out of Ontario. Thanks
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Hi Charlie, this is a one time decision and must happen within 60-days of converting to a LIF. The conversion to a LIF will also trigger annual minimum withdrawals so that is something to be considered, especially for anyone who is lower income and qualifies for GIS benefits or other income tested benefits. Here are some additional details…
https://www.fsco.gov.on.ca/en/pensions/lockedin/lif/Pages/default.aspx
https://www.fsco.gov.on.ca/en/pensions/policies/active/Documents/L200-418.pdfReply
Lloyd · Edit
Taking my commuted value and putting it in a LIRA could turn out to be the single largest financial blunder I made. I did get a professional opinion but I/we failed to consider one important factor and that skewed the whole analysis. It may work positive in the end, but unfortunately it would require me to die. But that is water under the bridge.
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Hindsight is always 20/20 Lloyd – we’ve all made mistakes and we don’t learn unless we make a few. You’ve done very well overall. What are your thoughts on this case study as a DIY investor? Thoughts on how to manage the LIRA?
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Lloyd · Edit
The managing of the assets should fit into an overall financial plan. I can’t really add much other than to re-iterate what you and Owen have already stated, a LIRA should not be considered an isolated asset.
On a personal note, I have my LIRA invested in 100% equities but I have a substantial GIC holding in my and DW’s RRSP. And as you know, we both have modest DB pensions indexed to inflation. It stands to reason that my situation is undoubtedly different than others. If I had to give some advice that would be universal in nature, it is to get a professional, *unbiased* opinion on the more complicated issues and go from there.
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Whether or not to take a commuted value is a very tough decision, so many different factors to consider, many of which have nothing to do with “the math” but instead with a persons feelings/goals/risk tolerance etc. If you don’t mind sharing Lloyd, I would love to know what your important factor was. Might be valuable for others making the same decision.
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Lloyd · Edit
Background: The federal government “sold” the air traffic system to NavCanada in ’96. We had the options of leaving the pension with the feds, transferring to the NavCanada pension plan, or taking the commuted value. We failed to take into consideration that had I taken the pension assets with me into NavCanada, any salary increases over the remainder of my career would be applied to those transferred pension credits. On paper, all I had to achieve in a LIRA was around a 7% return to be roughly equal to leaving it with the feds. In my neophyte mind I figured a 7% rate was doable and the benefit of a 100% death payout in a LIRA versus a 50% survivor pension sold me on it. Not paying much, much closer attention to the benefits of transferring was my downfall. Huge mistake.
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RBull · Edit
We’ve all had some regrets somewhere on financial/investment decisions. The main thing is you seem to be in a very good place (understatement) retirement wise.
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Lloyd · Edit
I don’t go to sleep every night kicking myself. It happened, there is nothing I can do about it. I made a mistake by basing a decision without *all* the facts, or maybe a better description is not realizing the ramifications of all the facts. In the big picture in my life (I know you understand RB) it isn’t really that big a of a deal. Suffice to say, it is easy to screw up sometimes and I’m good at it. 😉
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RBull · Edit
“Suffice to say, it is easy to screw up sometimes and I’m good at it. ?”
Trust me. Ditto here. But I’m a forward looking guy and yes in whole the scheme of things….whatever.
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Thanks for sharing Lloyd, I’m sure there is someone reading this who is in a similar position.
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Mordko · Edit
Not sure I agree with the LIRA/fixed income approach. Here is one scenario:
1. The economy tanks.
2. Recession, you lose your job
3. Shares tank too
4. Interest rates go to 0
5. Value of bonds goes up
6. You need the money to be withdrawn from the portfolio to get you over the hump.Under this scenario you are forced to deplete your TFSA or non-reg share-rich portfolio at the oust time possible.
The point worth a mention is that dividends from US shares are not taxed in RRSP/LIRA. Preferential placement of such stocks into LIRA gives the overall portfolio better return.
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Great counterpoint. I would consider the Vanguard or iShares all-in-one funds myself since I think they offer simplicity and growth over time as you are forced to deplete the LIRA with withdrawals at some point.
I believe Owen was looking at the LIRA as part of a fixed-income approach so you could invest more aggressively elsewhere.
From a personal perspective Mordko – I also keep a U.S. listed ETF in my LIRA for the exact reason you mention.
Do you have this account? Curious. Thanks for being a fan.
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Mordko · Edit
Yep. I do have a LIRA. And so does my wife.
Thanks
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Gotcha. Are you/your wife investing in mostly equities via your LIRA? I know I am. Just a personal decision vs. fixed-income but I’m OK with volatility short-term. I know I will come out ahead of bonds in another 10 years – at least I hope so 🙂
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Hi Mordko, thanks for your comment. Using the LIRA in this way needs to be part of an overall portfolio strategy including RRSP and TFSA, the LIRA shouldn’t be treated in isolation.
In the situation you described the client would rebalance between their entire portfolio, LIRA, RRSP and TFSA, to maintain their overall target asset allocation. Equities could be sold in their TFSA/RRSP to provide access to funds and at the same time bonds would be sold in the LIRA and then the same equities would be purchased. After selling and buying the overall asset allocation will remain the same, so essentially bonds were sold to fund the short-term income needs.
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Thanks for sharing Owen – you were looking at the sum of a LIRA, RRSP and TFSA, etc. as part of an overall portfolio asset allocation strategy.
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Mordko · Edit
Owen,
Thanks. I understand this – and my portfolio is structured to ensure target asset allocation and rebalancing across accounts.
It’s just if you lost 50% in your accessible accounts during a downturn, a chunk of your safety cushion is gone.
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The one bright spot in a terrible situation like the one you described is that financial hardship rules can kick in and allow you to unlock some of those locked-in investments. Low-income years, paying first/last months rent, medical expenses etc all qualify for financial hardship unlocking. So if during a downturn someone finds themselves out of work and needing to access those locked-in investments, it is possible.
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