LIRA Locked In Retirement Account Explained in 3 Minutes

Updated : Oct 19, 2019 in Articles

LIRA Locked In Retirement Account Explained in 3 Minutes


Hey guys Bridget from Money After
Graduation here to explain the Locked-In Retirement Account or LIRA in three
minutes. A locked-in retirement account or LIRA for short is a registered
account that you typically open when you’ve left an employer that’s provided
you with a pension. You can’t open a LIRA for any other reason. The only reason you
will ever have a LIRA is if you were working for a company that had you in a
company pension, and when you left that company, either to take a new job or you
were let go, you decided to remove the money from your company pension. A
locked-in retirement account is a lot like a registered retirement savings
plan or RRSP, but there are some key differences between the LIRA and the RRSP that I’ll explain. Now the first is obviously that your money is locked in
in a LIRA. You can’t withdraw from it for virtually
any reason, not even if you’re willing to take a tax hit. This is a lot different
from the RRSP where you are allowed to take money out of it with some penalties
and consequences, even if you’re not in retirement. You’re supposed to use your
money in your LIRA only for retirement and the government is really harsh about
making sure that that’s all you could use it for. There are a few exceptions
when you can withdraw money from your LIRA,
but you have to prove financial hardship. These things include having to make
first or last month’s rent on a new residence, if you’re in danger of
foreclosure on your primary residence because your mortgage is in default, or
if you need to adapt your home to accommodate a disability, or you have
other high medical costs because of an illness or disability. Other than those
reasons you can’t take money out of your LIRA. Once you get closer to retirement
age you’ll have some flexibility with your LIRA. Once your LIRA becomes an
LIF that’s when you can start making withdrawals. There is a minimum
withdrawal rate so you have to follow that as well, but other than that that’s
the only time you’ll be able to access your money. As a bit of a contradiction,
one of the biggest perks of a LIRA is that it’s so hard to get your money out
of it. When you can’t take money out to spend on anything else, it’s more of a
guarantee that you’ll have it there when you retire. The only thing that’s
important is that you manage your LIRA appropriately. Once you withdraw money
from your company pension and put it in a LIRA, how you invest and use it is up
to you. Now you can make your LIRA a savings account where it will
earn 1% to 2% until you retire or you can do it wisely and invest it in
the stock market. Like other registered accounts like the RRSP, TFSA, or RESP you
can invest your LIRA in the stock market. Of course, this requires that you know
how to invest in the stock market which not everybody does. If you don’t, you
definitely want to open your LIRA with a Robo advisor such as Wealthsimple. This
way, they’ll do all the investing for you and you’ll still enjoy those great
returns of being invested in the stock market instead of a savings account. If
you change jobs or leave a company that has a pension definitely put your money
in a LIRA and invest it appropriately. It’s just another part of your overall
net worth and ensures long term financial security. I hope you guys
enjoyed this video and learned something new today! If you did, give it a thumbs up
and subscribe to my channel and I will see you next week!

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