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Options to collapse LIRA beyond LIF withdrawal maximums

2K views 24 replies 9 participants last post by  Eclectic21 
#1 ·
I have a LIRA from working for a federally regulated company located in BC.

I'm assuming the BC LIF maximums apply, not the much lower Federal PBSA maximums.

Let's assume it's 250k at age 65.

I understand I can convert 50% of it to an RRSP which leaves 125k in the LIF

It will take until about age 84 to get the 125k LIF balance below the YMPE at 4% yield by withdrawing the maximum, which is too slow for me.

So, is it possible to accelerate the collapse of the LIF?

Could I buy a 5 year term certain annuity ?

Is there any investments that pay a high return of capital to facilitate something like this?
ie: One can exceed the maximum LIF withdrawal % if their previous yr's return was higher.

Other ideas?

Thanks
 
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#2 ·
My understanding is that if the pension was federally regulated then whether it is the 50% unlocking or minimum/maximum limits - it is going to be federally regulated. I doubt looking at provincial rules is of any use to you.

Regardless of what rules one is under - where a 50% unlock is available and used, my understanding is the ways to "accelerate" the draw down of the LIF are:

a) withdraw the maximum every year

b) shift the investments into slow growth investments (ex. sell high growing/high dividend stocks to buy GICs paying low interest).


I'm not sure a RoC type income matters much to what the maximum LIF withdrawal is. I'm not there yet so I haven't checked out what drives the maximum withdrawal amount, beyond one's age and what the FMV of the LIF is.


Cheers
 
#3 ·
It will take until about age 84 to get the 125k LIF balance below the YMPE at 4% yield
Why is that an objective?

Anyway, they call it locked in for a reason. The ability to get it all out before age 84 is precisely what they are trying to prevent. Your max. withdrawal is the best you can do. Getting a lower rate of return on the money or losing it cannot be advantages so I won't bother with any ideas there. Unless I am missing something about YMPE!
 
#7 ·
OK. Fair enough.

I don't know much about your situation but a couple other options, if your objective is to keep the estate taxes down, is to turn the LIF into a life annuity. Turn the LIF into an annuity to fund your retirement and when you die there is no residual value to create estate taxation. Use other money that you planned on funding your retirement, that may already be outside registered plans, to leave to heirs with less taxation.

If your ultimate objective is to maximize the after tax value of the estate, then annuitize the LIF and use the after tax proceeds of the annual annuity payments to buy as much life insurance as you can. Joint last to die if you have a spouse usually creates a little more value for your heirs. Very few strategies will have the ability to guarantee as much money in your estate as that, and when you die, none of it is taxable. Zippo.

Anyway, good luck.
 
#8 ·
Why don't you contract the trustee of the plan for direction??

Surely representatives of that financial institution will be well versed with the issue, your options, and with the applicable regulations. I have an RSP and Lira that must be collapsed this year. The trustee firm has been providing me with my options and responding to my questions. As has my advisor.

Failing that, a financial advisor who is conversant with the rules governing your LIRA.
 
#9 ·
I cannot help you but I completely understand your frustration.

I'm assuming the BC LIF maximums apply, not the much lower Federal PBSA maximums.
I am in a similar situation from when I worked for a federally regulated company in SK. Worse, it was a provincially regulated company until shortly before I left and commuted my pension but all of the pension money is stuck in a federally regulated LIRA.

I hope what you write is true and I will be able to withdrawal 6.57%, as opposed to the federal 4.58% maximum but I have not been able to convert this account to a LIF yet, due to a legal problem between myself and the bank so I lost a year on the withdrawal. Based on some linear projections, I do not expect to be able to liberate that money until my late 80s. That's brutal because I don't expect to live that long based on my medical history.

In my case, I have just assumed this relatively small amount of money will be cleaned up by my estate and subject to this taxation. Our survival does not pivot on this money so I am not particularly worked up about it but it is extremely annoying.

This account currently holds a stock which is distributing far more than the current maximum to the point the account will be huge by the time I am in my late 80s.

I've considered changing the holding in this account to something far more risky. While I don't want to lose this money, it would hurt a lot less to lose it here than it would to lose the money in an unlocked account. If I should decide to buy something risky, it would definitely happen in this account.

We recently cleaned up a parent's estate and they had multiple accounts. It was an expensive mess and the lawyer charged us per account. That event triggered my resolve to clean up my affairs as much as possible but I have no expectation of being able to collapse this account before I die.

Whatever the case, I will liberate this account at the first opportunity, should I live long enough. So, I understand the frustration of this lousy federal regulation.
 
#11 ·
I appreciate this comment and I will certainly look into it.

The OP's point remains relevant, IMO. Average lifespan for a male in Canada is 79-80 yoa and yet pension maximums don't even break 10% until 79 years of age.
 
#13 ·
Average lifespan for a male in Canada is 79-80 yoa and yet pension maximums don't even break 10% until 79 years of age.
You mean LIF/LIRA maximums? It completely agree. I think the paternal treatment of LIF/LIRA annuitants is disgraceful all around. Maximums, unlock criteria should be much more flexible than they are.

My mum's still functionally locked into to a LIF that she received as the beneficiary of a LIRA my dad had when he died over thirty years ago. LIRAs are meant to unlock on the death of the annuitant, but it seems to be lost on the, now third, administrator of the LIF who the annuitant even was. I don't know how old the unlock-on-death rule is, but I don't think it's new.

The only defence of any of the restrictive policies is that less restrictive access to LIRA assets would create too strong an incentive for folks to commute out of pensions, and seriously undermine their risk sharing ability. It's a thing that needs watching for sure. Arguably the LIRA of a pensioner might have to fill the role of a death benefit or survivor benefit for a dependent, so parsimonious maximums are not completely indefensible.
 
#15 ·
I worked with at least two people who took the CV and then saw their investments drop by 40-50 percent.

Out of fear, they took what remained of their CV and placed it in low interest guaranteed income funds that performed at or less than the rate of inflation. At a time when the market was headed north again. One of them had a so called investment advisor.

They each had to work more years than they planned on.
 
#20 ·
I don't understand the logic path of going from "a guy in Flin Flon, Manitoba did something dumb and got himself in trouble" to "the government should make it impossible for people to spend down their pension in their lifetime".

What about the people with corporate pensions which are mismanaged? My wife's pension got itself into trouble. A pension I was in 15 years ago got itself into trouble doing something stupid. Should we make pension plans illegal or maybe just legislate so people can't gain access to their money?

When the government tries to save us from ourselves, it rarely works out in our favor.
 
#22 · (Edited)
The difference is that most DB pension plans that get into difficulty OR suffer losses that that place them in the 70's/80's percentile of funding make additional payments to bring the DB plans up to to a proper funding level. The exception is probably multi employer DB plans.

I worked for one such company. Not a large DB plan in terms of members. The company made very significant additional contributions to the plan over several years in the early 2000's to bring it up to a fully funded on a going concern and a windup basis. Many other firms did exactly the same with their DB plans. It is why many DB plans undergo a mandated audit every two or three years.

It was one reason for the migration from DB to DC plans in order to move the investment risk for the employer to the the employee.

On the flip side this employer DB plan investments performed so well for a number of years no contributions were required....investment gains precluded the need for the employer to make even the regular pension contributions.
 
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