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Tim Cestnick is managing director at WaterStreet Family Wealth Counsel and author of 101 Tax Secrets for Canadians.

Getting old is a fact of life. I don't consider myself old yet. I'm not wearing black socks with my sandals. I don't think my kids look at me when I'm sleeping and wonder if I'm still alive. I'm not making donations to PBS. The neighbours still complain when I have a party at my place. I don't sing along with elevator music. I still sleep with my teeth.

Nope. I still think of myself as young. The day I start complaining about my locked-in retirement assets is the day I will know for certain that I've reached senior citizenry. What's a senior to do about locked-in money? No one wants to be told that they can't have access to the hard-earned dollars accumulated over the years. I can't help you much with your removable teeth, but I can help you unlock those locked-in retirement assets. Here's how it works.

The issue

If you've ever been a member of a pension plan, it could be that your retirement assets are currently locked away in a life income fund (LIF) or a locked-in retirement income fund (LRIF). When you leave your pension plan, all or part of the assets in the plan are commonly transferred to a locked-in retirement plan of some type. The money in the plan must generally remain locked-in with withdrawals typically available starting at age 55 (it varies by province). The result is that there will be some maximum amount you're allowed to withdraw each year.

These plans also have a minimum amount that must be withdrawn each year. Why? Because these plans are considered to be registered retirement income funds (RRIFs) under Canadian tax law, which requires the owner to withdraw a minimum amount annually after age 71.

The problem is the maximum withdrawal limitation. It would be ideal to have more flexibility around the timing of your withdrawals from your LIF or LRIF. Most provinces have relaxed their rules about getting money out of these plans. In Ontario, for example, you can withdraw up to a total of 50 per cent of your plan assets by transferring your old LIF assets to a new LIF (the rules are complex, so speak to your financial institution for details). While this is all good, the fact remains that you could still end up with significant assets locked up.

The answer

Let's get creative here. There's a way to release some of your locked-in assets over time. If you're like many Canadians, you may not need to make the maximum withdrawal each year to meet your costs of living. If this is the case, the difference between the maximum you're entitled to withdraw and the actual amount you withdraw can be transferred on a tax-free basis to a non-locked RRSP or RRIF.

Consider Bill's story. Bill is age 55 and has $250,000 in a LIF that he has just established. He has already made the maximum "unlocking withdrawal" that his province allows. At age 56, he will be required to withdraw 2.94 per cent of the account in the first year as a minimum under our tax law. He'll be restricted to a maximum withdrawal of 6.57 per cent under pension law.

Because Bill doesn't need to make the maximum withdrawal to meet his cash needs, he could make the mandatory minimum withdrawal and then transfer the balance, up to the maximum withdrawal, to a non-locked RRSP. In this example, 3.63 per cent (6.57 less 2.94 per cent), or $9,075, of his locked-in money will be transferred to a non-locked RRSP on a tax-free basis. To make this happen, Bill simply needs to file Form T2030 annually.

Over a 10-year period, Bill will have transferred a total of $108,770 to a non-locked plan. When you factor in growth on that money at, say, 8 per cent annually, the total value he will have unlocked is $153,860. He'll have full flexibility in accessing those dollars if he wants.

It's better to use a LIF than an LRIF for this strategy (not a big problem because most provinces have done away with LRIFs now; only Manitoba and Newfoundland still allow them) because the maximum withdrawal with a LIF is always higher than the minimum withdrawal. Not so with an LRIF. Further, you would be wise to base your withdrawals on the age of the younger spouse, which will reduce the minimum required withdrawal and allow you to unlock even more assets annually.