I'm pretty sure this
gives the correct prescription for calculating the LIF Maximum, but you should check out:
LIF Maxima Tables
Life Income Fund: formula for Ontario LIFs|
The prescription for calculating the Maximum Annual Withdrawals for a LIF is as follows:
- For fifteen years from the date when the LIF began, one computes the present value of a
$1.00 annual payment, using an annual rate:
Maximum of CANSIM and 6.0%.
- Thereafter, until age 90, compute the present value using 6.0% and add this to the above giving a number we'll call PV.
- The Maximum Annual LIF Withdrawal is a percentage of the LIF Balance as of January 1, that
percentage being 1/PV.
Uh ... one other thing:
- A = The age when you began the LIF withdrawals.
- T = your current age.
- J = 0.060 ... meaning 6.0%
- K = Canadian Government long bond rate (CANSIM Rate) ... if it's 5.67%, put K = 0.0567
- I = Maximum of J and K ... we're calling this the MAX Rate
- x = 1/(1+I)
- y = 1/(1+J)
- Calculate the Present Value of an annual payment of $1.00 at the rate I, from your current age T to age A+15, namely
P = 1 + x + x2 + ... + xA+14-T = (1-xA+15-T)/(1-x)
- Calculate the Present Value, at age A+15, of an annual payment of $1.00 at the rate J, to age 90, namely
1 + y + y2 + ... + y90-(A+15)
= (1-y75-A)/(1-y) the Value of umpteen $1.00 payments, at age A+15
and, bringing it to the present (A+15-T years earlier than at A+15 ... to your present age), gives:
Q = x(A+15-T) (1-y75-A)/(1-y)
- PV = P + Q
If you're over 75 years old then 15 years at the MAX Rate will take y'all over 90,
so don't bother with the MAX Rate; use the 6.0% until age 90.
Here's a picture of the LIF Maxima (as well as RRIF/LIF Minima):
Here's a Spreadsheet formula:
PV = IF(T<=A+14,(1-x^(A+15-T))/(1-x)+x^(A+15-T)*(1-y^(75-A)/(1-y),(1-y^(90-T))/(1-y))
... OR, of you just want a spreadsheet which looks like this:
then to download
If'n you'd like just a number, play with this calculator: