The potential drawbacks and risks of a LIRA
A locked-in retirement account (LIRA) is a type of retirement savings account that is restricted by pension legislation.
LIRAs are often used to hold the proceeds from a defined benefit pension plan when an individual leaves their employment.
While LIRAs can be a useful way to save for retirement, there are some potential drawbacks and risks to consider before deciding if a LIRA is right for you.
The funds in a LIRA are locked-in – One of the main drawbacks of a LIRA is that the funds in the account are locked-in, which means they cannot be withdrawn until a specific event, such as reaching the age of 55 or retiring from your current job. This means that you may not have access to your money in a LIRA if you need it for an emergency or unexpected expense.
LIRAs may have limited investment options – Another potential drawback of LIRAs is that they may have limited investment options. LIRAs are often restricted to investments that are considered low-risk, such as government bonds and money market funds. This means that you may not be able to take advantage of potentially higher-yielding investments, which could impact the growth of your savings.
LIRAs may affect your retirement income – The funds in a LIRA are intended to provide income in retirement. However, the amount of income you receive from a LIRA may be limited by the rules of the plan and the amount of funds you have saved. This means that you may not have as much income in retirement as you would with other types of retirement savings accounts.
Overall, LIRAs can be a useful way to save for retirement, but it’s important to understand their potential drawbacks and risks before deciding if a LIRA is right for you.
Be sure to carefully consider these factors and weigh the potential risks and benefits before making a decision.
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