DEFINITION of 'Fixed Amortization Method'

One of three methods by which early retirees of any age can access their retirement funds without penalty before turning 50.5. The fixed amortization method amortizes the retiree's account balance over his/her remaining life expectancy as estimated by IRS tables at an interest rate that is not more than 120% of the federal mid-term rate. Once the withdrawal amount is calculated, it cannot be changed.

The two other methods for early, penalty-free retirement withdrawals are the fixed annuitization method and the required minimum distribution method. Each method can result in quite different distribution amounts. The fixed amortization method can produce higher payments than the required minimum distribution method, but involves complex calculations and runs the risk of not keeping up with inflation.

BREAKING DOWN 'Fixed Amortization Method'

Although there are exceptions, usually, funds withdrawn before age 59.5 are assessed a 10% early withdrawal penalty. Retirees can elect to receive their distributions annually, quarterly or monthly. If withdrawals are stopped, all funds that have already been withdrawn become subject to early withdrawal penalties.

RELATED TERMS
  1. Rule 72(t)

    An Internal Revenue Service (IRS) rule that allows for penalty-free ...
  2. Annuity Factor Method

    A calculation method to determine the amount of eligible withdrawals ...
  3. Term Certain Method

    A method of calculating minimum distributions from a retirement ...
  4. Safe Withdrawal Rate (SWR) Method

    A method to determine how much retirees can withdraw from their ...
  5. Accounting Method

    The method by which income and expenses are reported for taxation ...
  6. Amortization

    1. The paying off of debt in regular installments over a period ...
Related Articles
  1. Investing

    Explaining Amortization In The Balance Sheet

    Amortization occurs when an asset’s value decreases over time, usually over its estimated useful life.
  2. Retirement

    Why The 4% Rule No Longer Works For Retirees

    The 4% rule basically states that retirees can withdraw that much from their portfolio each year without depleting the principal too early.
  3. Taxes

    How 401(k) Withdrawals Work When You're Unemployed

    Unemployed individuals can pursue several options when taking money out of their 401(k), but they should carefully weigh taxes and possible penalties
  4. Financial Advisor

    4 Mistakes to Avoid with Your Retirement Plan

    The retirement landscape is changing. Here are four things retirees today need to be wary — and aware — of when it comes to their investments.
  5. Retirement

    When a 401(k) Hardship Withdrawal Makes Sense

    If you've exhausted all other avenues, there are ways to withdraw funds before age 59½ – sometimes without the 10% penalty that's usually due.
  6. Retirement

    How Much Should Retirees Withdraw From Accounts?

    It can be difficult to determine how much money you can withdraw from your retirement savings each year without depleting your accounts.
  7. Personal Finance

    Mortgage Amortization Strategies

    Should you get a 30-year mortgage? A 15-year one? Ways to decide which mortgage is the best fit.
  8. Retirement

    Why The 4% Rule No Longer Works For Retirees

    Researchers have proven that the 4 % rule, which stated that retirees can withdraw 4% of the value of a portfolio each year without depleting the principal for 30 years, is not a realistic withdrawal ...
  9. Retirement

    This Is How Retirees Live on $1 Million Dollars

    Learn how to use various strategies, including immediate annuities and traditional portfolio investing, to make $1 million last throughout retirement.
  10. Investing

    Amortization

    Amortization and depreciation are two ways to prorate the cost of an asset's life. Learn more about the former and how it it's calculated.
RELATED FAQS
  1. What is the effective interest method of amortization?

    Find out more about the effective interest rate method and how the effective interest method is used to amortize a discounted ... Read Answer >>
  2. How do you calculate penalties on an IRA or Roth IRA early withdrawal?

    Find out how to calculate the tax penalty on early IRA distributions, including why distributions from Roth accounts can ... Read Answer >>
  3. Are there penalties for withdrawing monies invested in annuities?

    Learn about the penalties associated with taking early withdrawals from an annuity. Steep penalties are assessed by the insurer ... Read Answer >>
Hot Definitions
  1. Price Elasticity Of Demand

    A measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Price ...
  2. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  3. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center