LIRAs Unlocked: Turning Locked-In Funds into Long-Term Growth

Key takeaways:

  • Gen X and Millennials are reshaping career norms. A new survey reveals 4 in 10 workers planned to change jobs in the first half of 2025.
  • Many will transfer their retirement savings into Locked-In Retirement Accounts (LIRAs) when they change or lose employment.
  • LIRAs offer tax-deferred growth, allowing investments to compound without immediate tax implications. They provide flexible investment options, including private alternative investments.
  • Pension funds in a LIRA must be fully withdrawn by December 31 of the year you turn 71, typically by converting to a Life Income Fund (LIF) or an annuity.

Retirement isn’t a one-size-fits-all for Gen X and Millennials, who are redefining career norms and financial obligations. A recent survey by Robert Half found that nearly 4 in 10 workers planned to change jobs in the first half of 2025—a strong signal that career mobility is a defining trend across generations.

With this increased job mobility comes a series of critical financial decisions, especially regarding retirement accounts, upon leaving an employer. Statistics Canada reports that over 6.9 million Canadians have a registered pension plan. For those transitioning out of a role, one common option for managing pension funds is to transfer them into a Locked-In Retirement Account (LIRA). A LIRA is a type of retirement savings account in Canada designed to hold the pension funds you’ve earned through your employer after you leave a job.

Four smart moves to make after a job change

  1. Evaluate your retirement accounts: Review your existing retirement savings and ensure they still align with your long-term goals and current financial situation. A job change is a good time to revisit your overall strategy and adjust if needed.
  2. Understand your options: If you’re leaving a job with a pension plan, you typically have a few options for what to do with those funds, depending on the plan rules. Options may include leaving them in the former employer’s plan, transferring them to a new employer-sponsored plan, or transferring them to a LIRA.
  3. Resume retirement contributions: If your new employer offers a retirement savings plan, aim to start contributing as soon as you become eligible. Consistent contributions, even small ones, can have a big impact on your long-term savings.
  4. Invest through your LIRA to help maximize growth: If you’ve transferred pension funds into a LIRA, don’t let them sit idle. Use the account as an investment vehicle to hold a range of assets—including stocks, bonds, mutual funds, and private alternatives like REITs or renewable infrastructure funds. By actively investing, you can help your retirement savings grow over time.

LIRA vs a Registered Retirement Savings Plan (RRSP)–Key Differences

Function: When considering a LIRA vs an RRSP, both offer tax-deferred growth and are intended for retirement savings. However, LIRAs are specifically designed to hold pension funds and have restrictions on withdrawals until retirement age.

Withdraw rules: Funds in a LIRA are “locked-in,” meaning they generally cannot be withdrawn until retirement. In contrast, RRSPs offer more flexibility for withdrawals, though amounts withdrawn are subject to income tax.

LIRA withdrawal rules and requirements

Once your pension funds are transferred into a LIRA, they are “locked-in,” meaning you generally cannot withdraw the money until you are at least 55 years old and retired, subject to certain limitations. You must fully withdraw pension funds from your LIRA by December 31 of the year you turn 71. To withdraw funds you have the option to convert your LIRA to a Life Income Fund (LIF), a life annuity, or a combination of the two. Your options depend on the provincial or federal jurisdiction that regulates your pension funds.

Here are the three different scenarios:

1. Converting your LIRA to a LIF

A LIF works like a Registered Retirement Income Fund (RRIF), where your investments remain tax-sheltered until you withdraw, offering flexible investment options and control over the amount you can withdraw. You must withdraw a certain percentage of your LIF each year based on your age.

Example: Annual LIF minimum withdrawal calculation for a 75-year-old

  • Age: 75
  • LIF value: $500,000
  • Minimum withdrawal rate: 8.2655%
  • Minimum required withdrawal: $41,327.50

In the following year:

  • Age: 76
  • Updated LIF value (assuming no growth or depletion for simplicity): $500,000
  • New minimum withdrawal rate: 8.7258%
  • Minimum required withdrawal: $43,629

These withdrawal rates are sourced from the Government of Canada.

2. Buying a life annuity

Your second option is to convert your LIRA into a life annuity, a financial product typically purchased during retirement. Companies such as insurance providers or banks sell life annuities that provide guaranteed income. The amount of the regular income you get depends on multiple factors, as detailed on the Government of Canada website:

  • Your gender
  • Your age and health status when you buy the annuity
  • The amount of money you invest in the annuity
  • The type of annuity you buy
  • Whether you have the option to continue payments to a beneficiary or your estate after you die
  • The length of time you want to receive payments
  • The rate of interest when you buy the annuity
  • The annuity provider

3. Combination of LIF and life annuity

You can also split your LIRA funds between a LIF and a life annuity to balance flexibility and guaranteed income.

Increasing LIRA growth with Canadian private alternative investments

Although LIRAs can provide security and growth potential, how you allocate your pension funds within them can significantly influence their long-term performance, especially in volatile markets.

Investing in private alternatives through your LIRA, such as private REITs and renewable infrastructure funds, can bring numerous advantages, including diversification and tax-deferred growth—essential for working professionals looking to build their retirement savings. These investments also have the potential to generate stable, income-producing returns, which can be particularly beneficial when you’re retired and require dependable cash flow. When planning your LIRA investments for long-term financial security, it might be worthwhile to explore beyond conventional options and consider private alternatives.

Skyline offers four private alternative investment products, which are all eligible for registered accounts, including LIRAs. Each fund allows you to invest in a particular class of Canadian essential assets: multi-residential housing, industrial warehousing, “everyday essential” retail, and renewable infrastructure.

Skyline’s investments have a proven track record of resilience amid market uncertainty, providing historical annualized returns of 8-14% since inception (as at March 31, 2025).

Effective financial planning for retirement involves understanding your LIRA investment options and ensuring that your wealth management strategy is well-rounded from your working years to your golden years.

Investing your LIRA in REITs or renewable infrastructure may benefit your retirement savings. Contact a Skyline Wealth Management professional to explore LIRA or LIF investment strategies with Skyline’s private alternative investments. Our experts can assist in potentially growing your retirement income and achieving long-term financial security.

Grow your retirement income with tangible Canadian assets.
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