## DEFINITION of 'Life Expectancy Method'

A method of calculating annuity payments, by dividing the balance or total value of a retirement account by the policy holder's anticipated length of life. This is the easiest method of early distribution to calculate.

There are two types of life expectancy methods. One is the "certain method", and the other the "recalculation method". IRS tables help determine life expectancy of the owner or the joint life expectancies of the owner and a beneficiary.

Next Up

## BREAKING DOWN 'Life Expectancy Method'

An example of how this method is calculated:
If a 54-year-old single man wants distributions to begin in 2011, he must first calculate the total account value as of December 31, 2010 and his life expectancy according to IRS Publication 590 Appendix C. If the account value were \$100,000 and his life expectancy is 30.5 years, the amount he can receive in distributions each year is \$3,278.69. The following year, the now 55-year-old would again take the account balance on December 31 and divide the amount by 29.6 - his new life expectancy. Essentially, the older the person becomes, the shorter the life expectancy becomes, although this relationship is not linear.

RELATED TERMS
1. ### Term Certain Method

A method of calculating minimum distributions from a retirement ...
2. ### Life Expectancy

Life expectancy in social science is the statistical age until ...
3. ### Rule 72(t)

An Internal Revenue Service (IRS) rule that allows for penalty-free ...
4. ### Accounting Method

The method by which income and expenses are reported for taxation ...
5. ### Previous Balance Method

A credit card accounting method where interest charges are based ...
6. ### Fixed Annuitization Method

One of three methods by which early retirees of any age can access ...
Related Articles
1. Managing Wealth

### Life Expectancy: It's More Than Just A Number

Find out how this factor determines your life insurance premiums and affects your payout.
2. Retirement

### Understanding Different Types of Life Insurance

Understand the various types of life insurance, how each can be used in personal or business financial planning, and for whom they are best-suited.
3. Managing Wealth

### Profit From Unwanted Life Policies With Life Settlement

With a life settlement you could cash in on your policy money now.

### Which Life Insurance is Right For You?

Consumers have choices when it comes to life insurance. Knowing your future needs for cash or retirement can make the difference in what you select.
5. Retirement

### Beware the Sneaky Math of Universal Life Insurance

Universal life insurance's cash value can be a cash cow â€“ if there's any left. Read on to see if it'll work as an income source after you've retired.
6. Retirement

### Distribution Rules For Inherited Retirement Plan Assets

If you've recently inherited a retirement plan, you must get to know the rules for distributing the funds.
7. Insurance

### Millennials Guide: Too Young for Life Insurance?

Unless you have kids, it's easy to think you don't need life insurance Here are the reasons why you mightâ€“ as well as which type and how much to get.
8. Insurance

### What's Better: Whole Life or Term Insurance?

Life insurance can be a difficult decision to make, especially for a young adult. Here's a look at the benefits and costs of getting whole life insurance.

### Life Insurance for a Newborn Baby

In most cases, this is unnecessary, though a small policy offers benefits in certain cases.
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 is salvage value used in depreciation calculations?

Learn how an asset's salvage value is subtracted from its initial cost to determine the amount by which an asset is depreciated ... Read Answer >>
Hot Definitions
1. ### Call Option

An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
2. ### Pro-Rata

Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
3. ### Private Placement

The sale of securities to a relatively small number of select investors as a way of raising capital.
4. ### AAA

The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
5. ### Backward Integration

A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...
6. ### Pari-passu

A Latin phrase meaning "equal footing" that describes situations where two or more assets, securities, creditors or obligations ...