Women's Wealth Canada
Women's Wealth Canada
How to Turn Your Locked-In Pension into Retirement Income
What happens to your pension after you leave your job? In this episode, Glory Gray explains how locked-in pensions work in Canada and how to turn a LIRA into reliable retirement income. Learn the difference between LIFs and annuities, when you can unlock your pension, and how smart planning can help your money last longer.
Resources mentioned in this episode:
Season 5, Episode 9: Making the Most of Your Company Pension in Canada https://www.glorygray.com/blog/maximize-your-workplace-pension-1
Season 4, Episode 7: 10 Must-Know Answers to Your RRSP Questions https://www.glorygray.com/blog/10-must-know-answers-to-your-rrsp-questions
Original Music by
Purple Planet Music; Dmitrii Spis; Ezzy; Gem Brulé, DELUXXE; The Honeytones and jumpseat
Hosted by Glory Gray, BSc Finance, MFA
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Announcer:
You're listening to the Women's Wealth Canada podcast with Glory Gray. Be sure to download and subscribe using your favourite podcast app and ‘like’ us on Facebook.
GLORY:
Welcome to Women’s Wealth Canada — the show where we help Canadian women like you take control of their money and build YOUR life YOUR way.
I’m your host, Glory Gray — Financial Planner and Wealth Manager.
In our last episode, we talked about what types of pensions you might find at your job and what happens to your pension when you leave your job.
If you haven’t listened to that episode yet, definitely go back and check it out.
Today, we’re picking up right where we left off—this time, we’re talking about how to turn that pension into retirement income and the best strategies to ensure your money lasts.
Let’s jump right in.
When we finished our last episode we had just left our previous job. We reviewed the options we had regarding what to do with our workplace pension, and we decided to take it with us as a lump sum. This is a common scenario.
Sometimes my clients keep their pension at their former employer and review their options later when they're getting ready to retire. But most often, a lump sum is the best option.
So, let's assume we received our pension as a lump sum and we transferred that lump sum into a LIRA, a locked in retirement account. If you don't know what a LIRA is, go back to our November 4th episode where I explained that.
So, we have this LIRA. Let's say there's $200,000 in it. That money is locked in. Can we ever get it out of that account?
Yes–but it’s not as easy as pressing a button.
The magic age in most provinces is 55. That’s when you can usually begin unlocking your LIRA. But unlocking doesn’t mean you just pull it all out and spend it on a condo on Vancouver Island—tempting as that may be.
Instead, you’ll usually convert your LIRA into one of two things:
- A Life Income Fund, or LIF
- A Life Annuity
Let’s start with the LIF—because it’s the most popular option.
Think of a LIF as your paycheque in retirement. It pays you regular income every year, but here’s the catch: there’s a minimum amount you must take out and a maximum amount you are allowed to take out each year.
The minimum ensures you’re actually using your retirement savings.
The maximum protects you from pulling too much and running out of money too soon.
The great part? A LIF gives you some flexibility—you control the investments, your wealth advisor can manage this for you.
But if you’re someone who likes total control or needs a large amount of cash in early retirement, you might find those limits a bit frustrating.
The other option for your lump sum is a life annuity.
An annuity turns your LIRA into guaranteed monthly income—for the rest of your life. You hand over a chunk of your money to an insurance company, and they send you a regular payment, just like a pension.
No investment decisions, no market stress. Sounds great, right?
It is—for some people.
But once you buy an annuity, that money is locked away permanently. There’s no changing your mind. You are limited as to how much money you can take out for emergencies. So you need to be sure that this works for your long-term financial goals.
Let’s go over a few more unlocking tips. Here in Canada, each LIRA has its own rules for unlocking, depending on which province has jurisdiction over your LIRA. You can find out which province applies in your LIRA account information. Unlocking a LIRA in Ontario might be totally different from doing it in Alberta or B.C.
In general, you can start unlocking your LIRA when you hit age 55. For some LIRAs, when it’s time to unlock, you can take up to 50% of the account and move it into a more flexible investment vehicle like an RRSP or a RRIF, a Registered Retirement Income Fund, and put the other 50% into a Lifetime Income Fund.
You can find out more about how RRSPs and RRIFs work in our December, 2024 episode: Ten Must-Know Answers to Your RRSP Questions.
There are also some exceptions–again, depending on the rules that govern your LIRA– where unlocking early might be allowed. They are:
- If you’re facing financial hardship
- If you have a shortened life expectancy
- Or if your LIRA has a small balance.
So, yes, there are ways to access that money. But—and it’s a big but—you’ll need to follow the rules carefully, or you could face tax penalties or lose access to other retirement income benefits.
Now, let’s talk about some strategies you might use to make the most of your retirement income. Let’s say that, when you’re ready to retire, you do unlock 50% of your LIRA and move it into an RRSP or RRIF. Now you’ve got two streams of income:
- The LIF, with its locked-in withdrawals.
- Your RRSP or RRIF, which gives you more freedom to withdraw as needed.
This is where retirement income planning really shines. You can mix and match to create what’s called a layered income—steady LIF income combined with flexible RRSP or cash savings.
Now, withdrawals from any of these accounts are taxable income, so you’ll want to structure your withdrawals to avoid being bumped into a higher tax bracket.
And here’s a tip I use with my clients: As your required withdrawals become larger, you can transfer any excess income you don't need to a TFSA. There it will grow tax free and be withdrawn tax free down the road so that you pay less tax over time.
Key Takeaways
- You can start unlocking your LIRA around age 55, but the exact rules depend on the province that governs your account.
- When it’s time to turn your LIRA into income, your main options are a Life Income Fund (LIF) or a life annuity, each offering different levels of flexibility and certainty.
- A strong retirement income plan often blends steady LIF withdrawals with flexible RRSP/RRIF withdrawals, helping you manage taxes and make your savings last.
Next Steps
- Check your LIRA paperwork to confirm which province’s rules apply and what unlocking options you have.
- Review your full retirement income picture—including RRSPs, TFSAs, and other savings—to see how a LIF or annuity would fit.
- Talk with a qualified advisor who can help you structure your withdrawals so you keep more of your money working for you and pay less tax over time.
That’s it for our two-part series on workplace pensions in Canada. I hope you feel more confident about how to manage your pension and use it to create a sustainable income stream in retirement. If you need help figuring out what’s best for your situation, and you’d like to talk it through with someone who does this every day, I offer exploratory conversations for women who want clarity without pressure. Just go to GloryGray.com and get in touch with me.
If this episode spoke to you, I’d love for you to share it with another Canadian. Someone who deserves to feel just as empowered and capable in her financial life as you do.
Until next time I'm Glory Gray, your personal trainer for financial fitness telling you to take charge of your finances, plan for the future but most of all, enjoy today. Bye for now.
Announcer:
This podcast is for informational purposes only and should not be construed as investment, tax or legal advice. It is not an offer to sell or buy or an endorsement, recommendation or sponsorship of any entity or security cited. Mutual funds offered through Portfolio Strategies Corporation. Other products and services provided through Glory Gray Wealth Solutions.
