Fixed Annuitization Method

DEFINITION of 'Fixed Annuitization 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 annuitization method divides the retiree's account balance by an annuity factor taken from IRS tables to determine an annual payment amount. The annuity factor is based on IRS mortality tables and an interest rate that is less than 120% of the federal mid-term rate. Once the payment amount is determined, it cannot be changed.

BREAKING DOWN 'Fixed Annuitization Method'

The two other methods for early, penalty-free retirement withdrawals are the fixed amortization method and the required minimum distribution method. Each method can result in quite different distribution amounts. The fixed annuitization method is the most complicated but sometimes offers the highest payments.

Normally, funds withdrawn before age 59.5 are assessed a 10% early-withdrawal penalty. Funds must be withdrawn as substantially equal periodic payments as outlined by Internal Revenue Code Section 72(t) and must continue for five years or until the retiree reaches 59.5, whichever is longer. 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 If withdrawals are stopped, all funds that have already been withdrawn become subject to early withdrawal penalties.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. Fixed Amortization Method

    One of three methods by which early retirees of any age can access ...
  2. Required Minimum Distribution Method

    One of three methods by which early retirees of any age can access ...
  3. Annuity Factor Method

    A calculation method to determine the amount of eligible withdrawals ...
  4. Payout Phase

    The phase in an annuity during which payments are made to the ...
  5. Annuitization Method

    A type of annuity distribution structure that gives the annuitant ...
  6. Contingent Annuitant

    Someone designated by an annuitant to receive the annuitant’s ...
Related Articles
  1. Annuities

    What annuities are: Insurance products that provide a source of monthly, quarterly, annual or lump sum income during retirement. Pros: Tax-deferred growth of earnings; no annual contribution ...
  2. Retirement

    This Is How Retirees Live On $1 Million Dollars

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

    Can You Afford To Retire Early?

    Early retirement is the hope of many people currently in the workplace. So, how do we get there - and what are the downsides?
  4. Investing Basics

    The Top 4 Income Investments for Retirees in 2016

    These four investment types should mitigate risk in 2016 for retirees seeking income.
  5. Options & Futures

    Selecting The Payout On Your Annuity

    Make sure you understand your options for withdrawing your funds from this complex instrument.
  6. Retirement

    Asset Distributions A Key Consideration For Retirees

    How you distribute qualified retirement plan money can affect your taxes and Social Security benefits.
  7. 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.
  8. Retirement

    Variable Annuities With Living Benefits: Worth The Fees?

    Added features can make a variable annuity suitable for certain investors. Find out if it could work for you.
  9. Retirement

    Is Annuitization Your Best Strategy?

    Annuitization has traditionally offered annuity owners a stream of income they cannot outlive, but there are some disadvantages to this form of payout. Consider alternatives, such as income-benefit ...
  10. Financial Advisors

    How Fixed Index Annuities Yield Retirement Income

    For investors worried about outliving their income in retirement, fixed indexed annuities can help fill the gap. Here's how.
RELATED FAQS
  1. 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 >>
  2. Can I borrow from my annuity to put a down payment on a house?

    Learn how you can borrow money from an annuity for a house down payment, but also understand why fees and penalties make ... Read Answer >>
  3. What is the difference between a fixed and variable annuity?

    Understand the difference between fixed, variable and indexed annuities, and read a brief summary of their respective risks ... Read Answer >>
  4. What does a sample plan using the 4% retirement rule look like?

    Discover how the 4% retirement rule can work as part of a plan to achieve increasing retirement income if investments perform ... Read Answer >>
  5. What should my 85 year-old mother do with a deferred annuity she purchased in 1992?

    Retirement of the plan is May 2016. She had a one time investment and has never taken money out of the plan. ... Read Answer >>
  6. How does a qualified retirement plan early distribution work?

    Weigh the pros and cons of taking an early distribution from a retirement account. Most early distributions are subject to ... Read Answer >>
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center