Term Certain Method

DEFINITION of 'Term Certain Method'

A method of calculating minimum distributions from a retirement account based on the account holder's life expectancy. According to the term certain method, the distribution or withdrawal from the retirement account is based on the holder's life expectancy at the time of the first withdrawal. With each successive year, the account gets steadily depleted as life expectancy reduces by one year. The retirement account would thus be completely depleted once the account holder reaches his or her life expectancy age.

BREAKING DOWN 'Term Certain Method'

Owners of individual retirement accounts (IRA) are required to commence minimum withdrawals from their IRA on or before April 1 in the year after the year in which they reach the age of 70 1/2. The obvious problem with the term certain method is that a healthy retiree may outlive his or her retirement savings if he or she lives well past projected life expectancy. To avoid this problem, alternative methods are to use a joint life expectancy, or to recalculate the holder's life expectancy every year.