# What to hold and how to manage a LIRA?



## MorningCoffee

Hi everyone,

I've been reading along for months and since I had a few specific questions, I figured it was time I joined.

My question is specific to LIRAs. I had a DB pension but have now resigned from that job. I have decided to pull out my commuted value, worth 140K. I need to transfer it to a LIRA, which is fine. I've been reading about it and have a general understanding how LIRAs work. I'm 35 and it will be locked in until 55 (which is much better than leaving my money with the pension board until 65, yuck). I don't have any other RRSPs to my name yet. 

Where I have trouble is deciding what to hold in my LIRA. I know it's like any other RRSP account and I can hold anything from GICs to stocks, but really, what's the strategy for LIRAs? I was leaning towards index funds of ETFs, but can't wrap my brain around how that would work since it's a one time contribution. Can I manage it at all? How can it be rebalanced since I can't contribute to it and it's locked?

The easiest option would be buying some sort of life fund, but the ones I'm finding have high MERs, which I want to avoid. I do want something that is somewhat balanced and not too risky (not all stocks for example), but that will allow growth, since it will be locked for at least 20 years.

Does anyone have experience with LIRAs? Any suggestions? I have read all the threads I could find, but I just can't seem to put my finger on the info I'm looking for. Any recommendations for reading material or products for my situation? 

Thanks for reading!


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## BigMFfan

You can have the amount transferred in cash to a discount broker, and invest it any way, and at any time, you want. My LIRA account is just like my other trading accounts, except, like you mention, I can't add (at all) or withdraw funds from it (at least till I'm 55). You definitely don't have to invest the whole amount at once, nor in only one thing.


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## Retired Peasant

You might find that if you transfer it a couple of times to other institutions that it'll become unlocked (i.e. a regular RRSP)


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## My Own Advisor

I have a LIRA, but not nearly as much value in it as yours. About $26 k. I've decided to hold some U.S. stocks with this account.

Indexed ETFs seems like a great choice as well. 

I suppose it depends on the rest of your portfolio, what to hold in your LIRA, as it pertains to asset allocation. 

Here is a "101" article about LIRAs by Jim Yih but I suspect you already know this information:
http://canadianfinanceblog.com/learning-about-locked-in-retirement-accounts/


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## MorningCoffee

Thanks everyone for your feedback.
I'm currently reading "The Pension Puzzle" which is also helping. 
I still need to learn more about trading and ETFs. It will eventually make sense  

As for asset allocation, I want to treat it like I have nothing else - since at the moment it's all I will have as a registered plan, I do want a somewhat typical, balanced allocation of indexed ETFs (if there is such a beast). Is that a good strategy?

BigMFfan - so if I understand correctly, you can buy and sell within your LIRA trading account, you just can't add or withdraw? So re-balancing is done with trades. (Sorry, newbie here - I've never had a trading account).


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## MoneyGal

You don't really need to understand pensions (although reading anything by Bruce Cohen is always a good idea), because a LIRA is not a pension. It's just a locked in retirement savings container like an RRSP, but no withdrawals and no new contributions in most circumstances.


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## MorningCoffee

You're right MoneyGal - I got it because he has a chapter specifically on LIRAs. His explanation on how best to withdraw from a LIRA was interesting. Good information, but best for someone ready to retire, not someone looking at how to invest with a LIRA. Most of the info out there seems to be on unlocking or withdrawing...


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## MoneyGal

Yes, because you don't need to know anything "special" about LIRAs during the investing/accumulation stage of life - it's a retirement savings vehicle like a TFSA, RRSP or unregistered account...no specific investment strategies required because it is a LIRA versus an RRSP, for example.


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## My Own Advisor

Don't forget there are no withholding taxes in your LIRA. An "extra" spot to consider putting U.S. stocks or ETFs.


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## Jon_Snow

Interesting thread. I am thinking of leaving my employer in a year or two, so some of these questions have been rolling around in my head. 

I am a member of a very good DB plan, and I have to admit that leaving this plan is probably the biggest regret I will have when I quit my current job. I am walking away from alot of future security. Current communted value is around 120k.


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## MoneyGal

So, that's a pretty small DB pension. Why not keep it in place? What fraction of your overall wealth does that represent? I often think that a "small" DB pension plus savings outside a pension is the ideal retirement income scenario.


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## Jungle

Can you withdraw the funds before age 55?


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## Eclectic12

MorningCoffee said:


> Where I have trouble is deciding what to hold in my LIRA. I know it's like any other RRSP account and I can hold anything from GICs to stocks, but really, what's the strategy for LIRAs?
> 
> I was leaning towards index funds of ETFs, but can't wrap my brain around how that would work since it's a one time contribution. Can I manage it at all? How can it be rebalanced since I can't contribute to it and it's locked?!


The strategy is whatever combination of investments that will make it grow. Bear in mind your investing knowledge and how much work you are going to put into it. Only you can decide whether you have the knowledge and time to actively manage it.

As for rebalancing - sure you can. The only limit is no new money can go in so IMO, there are only two ways to rebalance. 

The first option is to sell something that has become over-weighted and buy a replacement that has become underweighted (ex. sell some emerging markets when it has tripled and move it into something more stable). 

The second is to remember that the LIRA is just one part of your overall financial picture. You can contribute to your RRSP and if you have been doing that, maybe it makes more sense to hold onto that emerging market fund as when you add in what you've contributed to your RRSP (and how it is allocated), you are actually underweight on the emerging market when both accounts are considered. 




MorningCoffee said:


> Does anyone have experience with LIRAs? Any suggestions? I have read all the threads I could find, but I just can't seem to put my finger on the info I'm looking for. Any recommendations for reading material or products for my situation?


I have two LIRAa plus an RRSP plus a DB pension. 

At the end of the day, you are looking for an investing strategy that will make it grow, which matches the effort you are willing to put in. Just don't forget that it's likely not your only account.


Cheers


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## MorningCoffee

Eclectic12 said:


> The first option is to sell something that has become over-weighted and buy a replacement that has become underweighted (ex. sell some emerging markets when it has tripled and move it into something more stable).
> 
> The second is to remember that the LIRA is just one part of your overall financial picture. You can contribute to your RRSP and if you have been doing that, maybe it makes more sense to hold onto that emerging market fund as when you add in what you've contributed to your RRSP (and how it is allocated), you are actually underweight on the emerging market when both accounts are considered.


Thanks, that helps. I hadn't really considered your second option. Makes sense in my situation, since I am planning on monthly contributions to new investments. Also seems easier to manage this way.


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## MorningCoffee

MoneyGal said:


> So, that's a pretty small DB pension. Why not keep it in place? What fraction of your overall wealth does that represent? I often think that a "small" DB pension plus savings outside a pension is the ideal retirement income scenario.


For my situation, leaving it in is a terrible option. My pension is based on my 5 best years of salary, and a percentage based on my (limited) years of working there. Since I won't come close to meeting my "factor" (combination of age and contributing work years) I can't touch it before 65, or I would lose most of it as a penalty. Then at 65, it'll be miniscule since my salary for the first years was low and I missed all of the big pay increases while on leave. 

Pulling it out now is the best option for me since the commuted values right now are really high (due to terrible interest rates). Win for me, but I can't wait too long or the value may drop significantly. Although every situation is different - I have coworkers who worked for the same number of years as I did and their estimated pension payouts double mine. They started after me and had much better salaries because of the pay increases.


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## BigMFfan

MorningCoffee said:


> Thanks, that helps. I hadn't really considered your second option. Makes sense in my situation, since I am planning on monthly contributions to new investments. Also seems easier to manage this way.


The second option is how I manage my LIRA as well. It contains all my US stocks, and international ones that do not have any tax withheld.


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## eiffel

MorningCoffee said:


> For my situation, leaving it in is a terrible option. My pension is based on my 5 best years of salary, and a percentage based on my (limited) years of working there. Since I won't come close to meeting my "factor" (combination of age and contributing work years) I can't touch it before 65, or I would lose most of it as a penalty. Then at 65, it'll be miniscule since my salary for the first years was low and I missed all of the big pay increases while on leave.
> 
> Pulling it out now is the best option for me since the commuted values right now are really high (due to terrible interest rates). Win for me, but I can't wait too long or the value may drop significantly. Although every situation is different - I have coworkers who worked for the same number of years as I did and their estimated pension payouts double mine. They started after me and had much better salaries because of the pay increases.


Are you sure the biggest factor is salary ? I have seen some of my co-workers commuted values and they are wide ranging. I thought the biggest factor was years worked but according to one pension rep they said it has nothing to do with years of service. They said it had to do with interest rates, age, gender and if you are marital status.

I guess the closer you are to 55 the closer you are to retirement and less penalty for retiring early.
maritial status - I guess if you are married, the pension plan has to set aside more funds in actuarial sense ?
gender - I don't know about this one, but I guess if you are a female, odds are you going to live longer than your counter part.


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## Sampson

MoneyGal said:


> I often think that a "small" DB pension plus savings outside a pension is the ideal retirement income scenario.


from a risk perspective?


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## peterk

Jon_Snow said:


> I am a member of a very good DB plan, and I have to admit that leaving this plan is probably the biggest regret I will have when I quit my current job. I am walking away from alot of future security. Current communted value is around 120k.


Can't you take the pension at 65? Or are they forcing you out and into a LIRA when you quit?


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