OK…maybe you educated yourself with our informative articles about the various unlocking rules or you used our “Can you unlock” simulator and great news, you are able to unlock some of the funds. So now, the question is…should you?
We will discuss here, the pros and cons to assist you in making this decision but we must specify that each person’s situation and circumstances are different and there is no general yes or no recommendations here. Whether you want to unlock because you are in financial duress and desperately needs money or if tis because you feel that “its your money and you should be able to use it whenever you want it” and that it’s not for the government to decide on your behalf, we leave up to you.
However, before making the decision these are some of the things you need to consider before making the decision to unlock:
The value of the pension: Another thing to consider is how much of a monthly pension will the plan provide you in your retirement? We will be honest here, in our experience most people plan are rarely worth more than $50,000.00. Such a plan is, in our opinion, insufficient to finance a proper enjoyable retirement unless you have other retirement plans and investment income and your LIRA complements it but a LIRA of $50,000 or heck even $100,000 is insufficient. Let us explain why. If you read our other articles, you will know and understand that once you are ready to retire that you must convert your LIRA/LRSP into a Phase 2 account such as a LIF where you will be allowed to take money out of it. Most of these LIFs come with mandatory yearly minimum withdrawals but are also CAP at a maximum rate (you can not take out the whole plan in one year or one shot as a lump-sum payment). Most people retire between 55 to 65. So lets look at what kind of monthly pension amounts they can expect to get from a $50,000 and $100,000 LIF.
| Scenario | $50,000 | $100,000 |
|---|---|---|
| Minimum amount you must withdraw if you retire at 55 | Monthly pension: $119.17 ($1430/year) | Monthly pension: $238.33 ($2860/year) |
| Average maximum amount you can withdraw if you retire at 55 | Monthly pension: $271.25 ($3255/year) | Monthly pension: $542.50 ($6510/year) |
| Minimum if you retire at 60 | Monthly pension: $138,75 ($1665/year) | Monthly pension: $277.50 ($3330/year) |
| Maximum allowed if you retire at 60 | Monthly pension: $285.42 ($33425/year) | Monthly pension: $570.83 ($6850/year) |
| Minimum if you retire at 65 | Monthly pension: $166.67 ($2000/year) | Monthly pension: $333.33 ($4000/year) |
| Maximum allowed if you retire at 65 | Monthly pension: $307.50 ($3690/year) | Monthly pension: $615.00 ($7380/year) |
*Numbers based on a LIRA from Ontario. Minor discrepancies for other jurisdiction. Each year the minimum and maximum threshold increases by about 1/10th of a percent.
We understand that the above numbers can be quite the reality check because even at $100,000 a LIF is not sufficient to provide a proper retirement lifestyle let alone even provide for basic needs such as shelter and food…unless you live in wooden shack in a remote forest we can’t think of how anyone would be able to pay for rent and food even with $300 to $600 a month in pension retirement.
Whatever you decide to do is up to you. We do not encourage one option over the other. We simply aim to educate and make you consider all the relevant variables before making a decision.
