FP Answers: What can I do with the money in my locked-in retirement account?

financialpost.com:

By Julie Cazzin with Allan Norman

Q: I am a retiree and have a question regarding a federally regulated locked-in retirement account (LIRA). Do I have to convert it to a restricted life income fund (RLIF) account in order to transfer a portion of the funds to my registered retirement savings plan (RRSP)? If so, can I then still purchase a life annuity with the remaining funds in the RLIF? I would prefer the annuity over the RLIF minimum/maximum yearly withdrawal restrictions.

FP Answers: The short answer to your question, Peter, is yes. You must convert your federal LIRA to a RLIF before you can unlock 50 per cent of its value and transfer 50 per cent to an RRSP or registered retirement income fund (RRIF). And, yes, you can purchase an annuity in your RLIF. But I’m curious about your preference for an annuity and your reasons for this preference.

You are right that using the funds in your RLIF to purchase an annuity avoids the minimum and maximum withdrawal rules since you will receive what the annuity pays. There are some notable downsides to an annuity and many people don’t like them for several reasons, including that they are long-term commitments, your money is locked up, your money is gone once you die and the insurance company wins and pockets your money if you die early.

Inflation is also an issue with annuities. That’s because if you have another 20 or 30 years to live, what is going to happen to your purchasing power?

Now, let’s look at what your rationale may likely be for not putting your money into equities, where you will probably do a lot better. I bet it’s that word “probably,” isn’t it? After all, there is no guarantee that equities will give you better returns and a lot of people don’t like