What is a LIRA?
A LIRA is a Locked-in Retirement Account. I know you don’t really care about what the acronym actually stands for it’s more important to understand what they do. How they are created? and How to use them in a halal way? Let’s go.
Once upon a time, a long time ago or maybe even in the present-day, you worked for an employer that provides/ provided you with a company pension. This is common among large and medium-size employers to help retain talent. How it works is usually after a waiting period 30, 60, 90 days you will be offered an employee benefits package. This package will include health and dental benefits along with your retirement and pension options. Generally speaking, you will be offered a Defined Contribution Plan (DCP) and in this contribution plan, you will either be able to choose how much you contribute or be forced to make some level of contribution depending on how your employer has structured it. The contributions you make will be matched by your employer. From what I have seen employers can match these anywhere from 15%-50% they can do more but that’s been the average. But Jesse what does this have to do with a LIRA? I’m getting to it I promise.
A LIRA is Formed
Usually, when you leave your former employer you will be given a few options. The first will be to keep the pension with the employer. With this option, you will leave this money under the management of your former employer and you will eventually get to access it if you remember you worked there when you retire (i don’t recommend this). The other option they will give you is to transfer that money to a LIRA (see told you we’d get there) (I recommend this). A LIRA essentially locks this money away until (you guessed it) retirement. Meaning you can’t withdraw this money. The reason why transferring this money to a LIRA is better is because you now at least have control over how the funds are invested. Like most other investment accounts out there a LIRA can be invested in either a Halal way or a Haram way. By taking control of that pension money you earned you will be able to ensure it is invested in a way that is aligned with Islamic Values. Alternatively, by leaving it with an employer I can assure you the money will not be invested in a Halal way.
How to Transfer?
Usually, your employer will give you an option to transfer the funds and a package for doing so after you have stopped working for them. Don’t worry the advisor you’ve chosen will be more then happy to do this paperwork for you (even I and I hate paperwork).
Which Company Should you transfer your LIRA to?
Well, that’s obvious. Canadian Islamic Wealth of course. We work with people from all walks of life. Some are investing as little as $50 per month and as much as $2,000,000. It doesn’t matter to us as long as you want to do things in a halal way. Obviously, we don’t just want you to invest one time. We want to understand your goals and your entire financial situation so that we can create a plan for you that allows you to achieve your goals in a halal way.
All in all LIRA’s are not that complicated. It is an account that only exists because you left your employer for bigger and better things. The best thing to do is to move those investments after you left your employer so that you can keep track of them and make sure they are invested in a halal way.