Financial hardship withdrawal exceptions and increasing income in retirement

First, remember the money in your locked-in retirement account (LIRA) or LIF is money intended to provide you with a lifetime income. Upon leaving your employer, your pension savings were converted into a LIRA, which again is intended to last you your lifetime.        

With most LIRAs, you can start making withdrawals at age 55. That’s done by converting a LIRA to a LIF. In some ways, LIRAs and LIFs are similar to registered retirement savings plans (RRSPs) or registered retirement income funds (RRIFs). Except with a LIRA, you can’t withdraw money like you can from an RRSP. And with a LIF, you are limited to a maximum withdrawal amount, whereas with a RRIF, you can withdraw as much money as you like.

Not all LIRAs and LIFs are the same 

There are federally and provincially regulated LIRAs and LIFs. And, when it comes to withdrawals, exceptions and unlocking privileges, you need to check if your LIRA and/or LIF is a federal or provincial plan, as they each have their own set of rules. If you’re not sure where your LIRA and/or LIF is registered, call the financial institution holding your account.

Once you know how your LIRA and/or LIF account is registered, go to that jurisdiction’s website to review its unlocking rules. The best thing to do is to download the unlocking application form and give it a read. Typically, it’s not that difficult to understand.

CM, for you, go to the B.C. Financial Services Authority website and download the application. On the site, you will see you can withdraw additional monies from your LIF, over the maximum withdrawal limit, if you are facing financial hardship. You mentioned you don’t qualify, but let’s review the financial hardship exceptions, just in case.

Financial hardship withdrawal exceptions for LIFs in B.C.

To qualify for financial hardship for a LIF in B.C., you must meet one or more of the following criteria:

1. Your taxable income is less than $45,667.
2. You have mortgage arrears
3. You are facing eviction of a rented home, and you need the funds to secure a new principal residence or first month’s rent.
4. You have medical costs.

Other ways to unlock your LIF in B.C.

In most cases, a person will unlock their LIF in one of the following ways instead of applying for financial hardship.

1. At any age, a LIRA and/or LIF with an account balance of less than 20% of the year’s maximum pensionable earnings (YMPE) can be unlocked. In 2024, the YMPE is $68,500, and works out to $13,700;
2. Once you turn 65, you can unlock your LIRA and LIF, if they contain less than 40% of the YMPE, which is $27,400 for 2024;  
3. Permanent departure from Canada;
4. Or, your life expectancy has been shortened.

No matter which exception you qualify for, you must apply. The financial institution holding your investment account can provide you with the necessary forms.

What to do if you don’t qualify for unlocking your LIF?

If you’re unable to unlock your LIF and you really need the money, you will have to find funds elsewhere. I don’t know your circumstances well enough to tell you where you will find the money, but planner Michael Curtis, of Vision Works financial planning software, has put forth the 3Cs concept, which may help frame your thinking about where the money may come from.

The 3Cs: Convert, Create and Conserve

Converting wealth is simply selling a fixed asset to provide cash for living expenses or to purchase an income-producing asset. This could be a simple thing to do, and it may have a large financial impact for you. Examples include downsizing a home, and selling personal items such as art, jewellery or anything else you’re no longer using.

Creating wealth may involve taking on extra work, getting a raise or renting out part of your home. It can also include earning higher returns on your investments.

Conserving wealth is attempting to spend less money, reducing debt costs and reducing income tax.

Of the 3Cs, creating wealth is normally the toughest one to do, but it often yields the greatest results. On the opposite end, conserving wealth by reducing expenses doesn’t usually yield the results of the other two Cs. And, although it may seem easy, it’s not. And it’s not fun. Who wants to lower their standard of living?     

Changing your mind about a LIF

CM, I know I couldn’t provide you with the exact answer you’re looking for, but I feel sometimes people are too quick to cash out of retirement savings to pay off debt. Take a minute to think about each of the 3Cs and how they might apply to you. Do you have any assets you are willing to sell and convert to cash? Is there something you can do to earn more money? If you must, could you reduce your spending? If you can find a way through this time without unlocking your LIF, you will be better off down the road.

Read more from Ask MoneySense:

• RRIF and LIF withdrawal rates: Everything you need to know
• RRIF withdrawals: What should seniors with million-dollar portfolios do?
• How much to take out of your RRSP in your 60s
• How much should you withdraw from your RRIF?

About Allan Norman, MSc, CFP, CIM

With over 30 years as a financial planner, Allan is an associate portfolio manager at Aligned Capital Partners Inc., where he helps Canadians maintain their lifestyles, without fear of running out of money.

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