Managing my LIRA
I could be writing about Italy’s former national currency before the euro took over and what remains the national currency for Turkey, but that’s another post better served by currency analysts. What I’m writing about today is my Locked-In Retirement Account (LIRA), part of my investment portfolio:
-what is it?
-what I did with it recently, and
-what I’m doing with it going forward as part of my retirement strategy.
What is a LIRA and where does it come from?
A LIRA is better known as a Locked-In RRSP. They originate from money held within a company pension plan. As long as you’re employed with that company your money may be invested (and vested) in a defined benefit or a defined contribution plan. When you leave the company you may have the choice to move the money accumulated into a personal plan. This is what happened in my case. I left my former employer almost 10 years ago and was able to…take the money and run. Problem was, I couldn’t contribute to that pool of money. Too bad too, but it’s the nature of the “locked-in” account.
This is one of the main differences between a LIRA and a RRSP:
LIRAs hold pension money and because of this you cannot contribute money to it.
The second main difference is:
With RRSPs, you can take money out when you want (taxes will apply) and there are no limits how much you can take out if you do. With LIRAs, you are restricted on withdrawals.
Only some provinces allow the “unlocking” of LIRA monies. Certain circumstances must apply. Some of those conditions include: small balances in the account, becoming a non-resident of Canada, shortened life expectancy or financial hardship. Taxtips.ca in the past has a great page about LIRAs if you want to know how, or if, you can “unlock” your LIRA.
My LIRA: Then and Now.
Then…
Soon after leaving my former employer in early 2001, I invested the money in a dividend growth mutual fund and never looked back. That is until about a year ago. The dividend growth mutual fund performed OK, even after the most recent bear market. I guess I got lucky. After learning more about ETFs, index and dividend-investing in recent years, I decided my dividend growth mutual fund had to go. This year, amongst other portfolio changes, became the year to get my LIRA finances in order.
Now…
Early in 2010, I transferred my LIRA account from a mutual fund account into a brokerage account. I was able to make this transfer in-kind, no fees involved. Next, I sold my dividend growth fund. I kept the money for a few months in cash until I saw an opportunity to buy a small portion of XBB with some of the cash. I now hold enough units to provide me about $30/month in dividends. Compare that to the $30/quarter I was getting with my mutual fund, and I know I made the right decision. Additionally, I wanted more U.S.-exposure so I decided to pick up Coca-Cola (US:KO) for my LIRA. Until this transaction, I didn’t own any Coco-Cola stock. KO has paid dividends to investors on its common stock since 1893. I know “historical performance is not indicative of future performance” but heck, hard to argue with that track record.
Managing my LIRA going-forward
For now, with XBB and some Coca-Cola in my LIRA, I figure I’ll have a steady stream of dividends coming in allowing me to buy more shares as I see fit, as the cash accumulates. XBB will provide long-term fixed income stability, Coca-Cola will give me desired U.S.-exposure.
That said, I might change things up with time.
Closer to retirement, I’m considering converting my LIRA into another tax-deferred vehicle such as a Life Income Fund (LIF) or a Locked-In Retirement Income Fund (LRIF). An annuity is probably another choice, but I haven’t done tons of research on any of these products yet. I can’t retire tomorrow or next year (sigh…) so I figure I have a few more years of work (and to work) on those retirement options. I’m just glad to have learned what I have in recent years so I can take better control of my finances. I know I might make mistakes, but that’s OK. The more I learn, the more I know and the more I know, the more I can improve.
Do you have a LIRA? If so, how do you manage it?
My husband and I yolo’d his lira account that had dropped to 33,000$ after bad investments made by his advisor, as well as some of our RRSPs and tax savings in the stock market. We ended up making big gains (bought marijuana stocks in their infancy and sold at peak right before legalization.) We moved the bulk of it into dividend paying bank and telecom stocks. We are making about 25,000$ quarterly in total on dividends which we are currently reinvesting. So the dividends themselves keep growing. This more than our current combined income and is more than enough to support our household right now ( we are in our forties.) But the catch is about a million of our total investments is in the Lira. So am I right in understanding that their is no way to access just the dividend component? It all counts as part of the Lira? At 55 my husband will also have a 3700$ monthly pension which will also kick it so it really seems silly to have to wait to retire when we have more than enough right now.
LIRA rules might vary Stacey by province. That said, in Ontario, I know for my small LIRA I cannot access it until age 55.
If you have $1 M in your LIRA, a) awesome and yes b) you’ll probably have to wait to tap that money.
Have you talked to your (former) company to confirm the LIRA rules for you both? Your discount brokerage should be able to provide some insight as well.
All the best – you’re on a tremendous path.
We have debt we are trying to pay off and no thanks to the government’s locking down my wife’s transfer value buyout she took for federal public service into a LIRA. We don’t want another loan, we want to get rid of debt not move it around. She already has a good military pension and I have a pension as well. I am 56 and she is 47 and can’t touch her money for another 8 years! My question is can she sell part of her LIRA to a firm or financial institution for cash to pay off debt?
Congrats Marc on your wife’s great military pension – you and her have earned it 🙂
Yes, min. age 55 I recall for a LIRA here in Ontario at least.
It really depends how comfortable you are with debt. I wouldn’t mind carrying some debt as long as I knew my money was working for me and I could pay it off easily if I really had to, or, at least soon if I needed to.
Great article, congratulations on your success. I really appreciate how you have answered everybody’s questions. This was very helpful for me as we move my wife’s pension from her old work to a self directed LIRA with RBC. All of which I learned by reading your article and the subsequent questions and answers. Great work thanks : )
Thanks David. I’m certainly not able to provide direct advice here but if you and others can learn a nugget or two and apply to your own situation, to make your financial life better – that is certainly great 🙂 Continued success to you.
I find it extremely annoying that our Nanny State has the power to lock our money down. LIRA = TYRANNY! Who imposed this BS on us?
Shame on us for sleeping at the wheel!
What business is it of Big Brother, if we blow our retirement savings, subjecting ourselves to a life of impoverishment on CPP/OAS. We paid into it. Its OUR money. (our pensions, and CPP) We simply can’t be trusted! The government needs to save us from ourselves!
I don’t want to spend it before retirement. It just burns my A@@ that they have ANY say over my MONEY!
Other than that, great article Mark!
Well…you have the power to invest on your own Dave 🙂 Thanks for the kind words on my article!
Hi Mark,
Thank you for the article. I recently left a 19 year position and today I received the documentation explaining my options pertaining to the accrued pention value (a little over 200k). They offer the option of leaving the pension as is and then receiving a certainly monthly pay out at age 65 (or as early as 55 with a newly calculated monthly pension) or transfering to a LIRA. I am 37 years old and have the habit of wanting to manage as much of my money myself as I can. From what you write I understand that I could have a self directed brokerage account opened and transfer the LIRA there so I can manage all the investments held as I see fit? Do you have any suggestions for quality online brokerage accounts? I have had some at Questtrade and RBC but am looking for other options. Thanks!!!!
Hey Steve,
I hope the move is a good one for you…
I can’t offer specific advice but I can tell you that I also try to manage my own money – hence the name of the blog 🙂
You can absolutely have a self-directed LIRA and hold some U.S. or CDN stocks or ETFs (or both) in that account, therefore transferring that $200K locked-in money there. I started with $7k CDN when I left my employer many, many years ago (18 years now). That has grown into $36K CDN now.
I’m a big fan of Questrade, TD, RBC Direct Investing, BMO InvestorLine to name a few. I have a partnership with BMO so you’re welcome to give them a call and talk to them free of charge and see if they can apply one of my promo codes for you!
https://www.myownadvisor.ca/deals/
Again, can’t offer advice in what to invest in but I would certainly consider some low-cost equity ETFs for long-term growth.
All the best and let me know if you have any questions,
Mark
I have 40000 in a Lira in an RRSP mutual fund in a bank here in Canada. Last year I made like hardly any money on it. How do I do what you did with it? Any and all tips would help. Ive been trying to learn as much about money and set myself on the path to financial freedom. Thank you!!
Hey Jesse,
FWIW, I have 100% of my LIRA in HDV.
https://www.ishares.com/us/products/239563/ishares-high-dividend-etf
I used to have it in KO (Coca-Cola) but I’ve since realized I can get great returns via a low-cost ETF like this one. I sold KO so time ago and now only have HDV. I have since earned about 10% in this fund over the last 3-years since my decision to sell KO.
FWIW, I have about $28k USD in this fund. It’s not a recommendation for purchase at all but rather how I consider using a low-cost ETF for long-term investing in this account.
Do you have access to a CDN or US or both investing inside your LIRA? Some brokerages offer dual currency investing 🙂
So you earn a dividend in your LIRA. What are you options for that dividend? Is it re-invested? Is it paid to the LIRA? Can it be paid out in cash?
I have a small LIRA still Warren, yes, and in Ontario my options are to unlock it at age 55 and move some money into my RRSP. Here is an article on LIRAs:
http://www.moneysense.ca/save/investing/rrsp/how-to-get-money-out-of-liras/
“Typically withdrawals cannot begin before the age of 55 and you must change your LIRA into a LIF (locked-in Life Income Fund) or LRIF (Locked-in Restricted Life Income Fund) to begin withdrawals. Minimum and maximum withdrawal amounts can be taken each year thereafter according to either your age or your spouse’s age–depending which you choose to base the withdrawals upon when you establish the account.”
After I stop working, and after age 55, I plan to turn my LIRA into a LIF and basically set-up a withdrawal schedule for the income until the account is depleted.
I actually no longer hold KO stock inside my LIRA. I hope to update that post in a few months and explain my approach. I own 100% VTI in that account now.
Does that help?
Mark
i have my LIRA invested with a Canadian bank; I am just wondering if I HAVE to have a bank run it. as I look at the amount of fees taken (like 5 grand a year) and think wtf…
I really don’t know what to do
Hey David,
Thanks for the email and the short answer is yes. Firms beyond big banks do run LIRAs. Here are some examples:
https://www.manulife.ca/for-you/investments/explore/plans/lira.html
http://www.questrade.com/account/account_types/registered/lira
A LIRA unto themselves, since it is an account, usually don’t cost anything although there are minimums that can apply based on a certain balance. What is potentially costing you money (like 5 grand a year) is the investment(s) inside your LIRA.
You might want to talk to your institution with the current LIRA and really understand what is going on. Best wishes.
How do you facilitate the move? Obviously open a brokerage account … is there a procedure from the money market account to make that transfer?
I cannot offer specific advice for you Martin but I can offer a take on what I might do in the future:
1. Closer to retirement, open a LRIF (Locked-In Retirement Income Fund).
2. Use this tax-deferred account vehicle to own U.S. stocks that pay dividends.
3. Use dividends to fund the annual minimum withdrawals assigned to a LRIF.
Here are some links for you:
https://www.investorsedge.cibc.com/ie/education-centre/topics/retirement/early-retirement.html
For Ontario:
https://www.fsco.gov.on.ca/en/pensions/lockedin/faq/Pages/-lifchanges2009-faq.aspx
https://www.sunlife.ca/ca/Investments/RRIF+and+LIF/Life+income+fund+LIF+and+locked-in+retirement+income+fund+LRIF?vgnLocale=en_CA
Wow, so glad to find this post!!! I’m looking at doing the same thing. I’m taking an investment course and learning about all the different types of trading. Thanks for posting.
I have one question, do you have to reinvest gains in the LIRA or can you move them to other accounts?
Unfortunately once the money is in a LIRA, it cannot be taken out until federal or provincial rules dictate. See link below for Ontario:
https://www.fsco.gov.on.ca/en/pensions/lockedin/faq/Pages/lira.aspx
Typically you cannot unlock money until age 55.
Just realized I asked this question wrong. I meant to ask. When you have moved your LIRA to a brokerage account and you are now in an EFT, I assume that the gains realized in the EFT must remain in the EFT and cannot be transferred to alternate accounts. I’m sure the answer is still the same, but have you ever looked into it?
Hey Martin,
My LIRA was the outcome of having a very small workplace DC pension at my first employer. I left the company, and I needed to take my pension somewhere. This became my LIRA. A LIRA can be a self-directed RRSP, but a locked-in one, one I cannot contribute to. So, I did that, made it a self-directed RRSP whereby I could put stocks into it.
I decided long-ago US dividend paying stocks in particular are a good thing – so that’s what I did – buy one.
https://www.myownadvisor.ca/managing-my-lira-update-2/
Held ever since for dividends and capital appreciation.
I intend to unlock 50% of the assets when I’m 55:
“One-Time 50% Unlocking
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.”
http://www.taxtips.ca/pensions/rpp/unlockingrpp.htm
If I am retired at 55, I hope to be, then I will simply withdraw the rest when not working and spend it on a nice trip somewhere overseas for a few months.
Hope that helps.
Maybe I skimmed the article, but you say that you can’t add to a LIRA account, but what are you doing with your dividends? I got the impression you were reinvesting them back in your LIRA? Is that a loop-hole, or are you doing something else with your dividends entirely?
Thanks! Very helpful article. Love your website.
I’m reinvesting all dividends paid. A LIRA is very much like an RRSP (tax-deferred account) but you cannot contribute a penny to it. No loop-hole, totally legit. Most LIRAs are created when you leave an organization with a vested defined contribution pension plan. You can start “unlocking” your LIRA at age 55 usually. Thanks for the kind words!