Term Certain Method

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Roth IRA

    An individual retirement plan that bears many similarities to ...
  2. Required Minimum Distribution - ...

    The amount that Traditional, SEP and SIMPLE IRA owners and qualified ...
  3. Individual Retirement Account - ...

    An investing tool used by individuals to earn and earmark funds ...
  4. Term Certain Annuity

    An insurance product that guarantees a periodic payment of a ...
  5. Life Expectancy

    1. The age until which a person is expected to live. 2. The ...
  6. Elder Care

    Elder care, sometimes called elderly care, refers to services ...
Related Articles
  1. Taxes

    Preparing For Retirement Plan RMD Season

    Paying taxes is inevitable - that's why you need to learn about the rules for required minimum distributions.
  2. Taxes

    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.
  3. Retirement

    3 Deadlines For Retirement Plan Beneficiaries

    To take full advantage of new RMD regulations, beneficiaries need to take action before important deadlines.
  4. Budgeting

    Managing Income During Retirement

    Learn some sensible strategies for making your hard-earned savings last for as long as you need them.
  5. Taxes

    6 Important Retirement Plan RMD Rules

    Paying taxes is inevitable - that's why you need to learn about the rules for required minimum distributions.
  6. Professionals

    Retirement Bliss? Not So fast: When Savings Lag

    Most people aren't saving enough for retirement. Here are some tips savers and financial advisors can use to change that.
  7. Professionals

    Multiple Accounts? Here's How to Calculate RMDs

    Ever wondered about how to calculate required minimum distributions on multiple accounts? Here's a quick primer.
  8. Professionals

    Financial Planning Tips And Resources For Veterans

    Veterans or all kinds have special needs when it comes to financial planning. Here are some tips as well as a comprehensive list of online resources.
  9. Professionals

    Where You Clients Should Retire (For Tax Reasons)

    Are your clients asking where they should retire? That's a tough call, but here we cover the tax angle.
  10. Professionals

    Should Your Retiring Clients Pay Off A Mortgage?

    Should your retiring clients pay off their mortgages? It's more complicated than 'yes' or 'no,' so here's a quick guide.

You May Also Like

Hot Definitions
  1. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  2. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  3. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  4. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  5. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
  6. Key Performance Indicators - KPI

    A set of quantifiable measures that a company or industry uses to gauge or compare performance in terms of meeting their ...
Trading Center