If you’ve ever participated in a Manitoba pension in your working career, you may already know that your income options are limited. Government regulations place restraints on “when” you can access your pension income as well as “how much” you are allowed to access in a particular year. If you own a Locked-In Retirement Account (LIRA), as a result of leaving a former employer, this is especially pertinent to you.
The “normal” course of action for getting at the money inside of a LIRA is to convert it into a Life Income Fund (LIF). LIRA’s aren’t eligible for a direct withdrawal; think of them more as a protective placeholder for your funds, from the time you leave the pension until such time as you’re ready to start an income stream. LIFs, on the other hand, are like turning on a leaky tap. You must take a minimum amount from the LIF each year, yet you can’t take more than a maximum amount either. There’s a “floor” and a “ceiling” and you must have an income somewhere between the two. For example, someone who was 65 years old when 2020 started, had to make withdrawals from their LIF in the 4% – 7.20% range.
The “ceiling” on LIF payments can be very restrictive for many people as they were counting on those pension funds for certain retirement goals. Maybe you want a higher income in early retirement years for travel, vacations, or hobbies. Perhaps you have a specific tax strategy to reduce your registered investments before you begin CPP or OAS. Or maybe you just want the security that you can get at your money if you need it in a pinch. So, what’s a retiree to do?
In Manitoba, we have a very special, very underutilized option to create a Prescribed Retirement Income Fund (PRIF). A PRIF has the same “floor” as a LIF for income requirements, but absolutely no ceiling. You can take as much income as you want from a PRIF in any given year without constraint!
How do I get a PRIF? Each Manitoban can only ever create one PRIF in their lifetime, and it must be created at the same time that you convert your LIRA into a LIF. The most money you can roll into your PRIF is half of the value of your LIRA at that time. That means someone with a $100,000 LIRA can split $50,000 into a PRIF and $50,000 into a LIF. Now only half of their money is subject to a ceiling cap and the other half is far, far more flexible!
Seeing as there’s only one opportunity to create a PRIF, I always recommend the strategy to clients, even if they don’t intend to take advantage. There are no rules stating you must take more from the PRIF than the LIF, but there is definitely a risk that you’ll need access to more money in the future. There is a lot of value in having flexibility with your retirement asset, so don’t miss your chance to create a little more flexibility in your plans!
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