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.

RELATED TERMS
  1. Required Minimum Distribution - ...

    The amount that Traditional, SEP and SIMPLE IRA owners and qualified ...
  2. Roth IRA

    An individual retirement plan that bears many similarities to ...
  3. Life Expectancy

    Life expectancy in social science is the statistical age until ...
  4. Term Certain Annuity

    An insurance product that guarantees a periodic payment of a ...
  5. Individual Retirement Account - ...

    An investing tool used by individuals to earn and earmark funds ...
  6. Sequence Risk

    The risk of receiving lower or negative returns early in a period ...
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. Savings

    What Your Credit Score Means for Your Love Life

    Wondering if your significant other wants to commit and is reliable? The Fed might have the answer.
  7. Your Clients

    Tips for Making Your Nest Egg Last Longer

    If you’re trying to figure out how to make your hard-earned nest egg last, there’s one piece of advice that stands above the rest.
  8. Retirement

    Early Out: A Realistic Plan to Retire Younger

    If you want to retire ahead of schedule, it'll take some extra planning.
  9. Mutual Funds & ETFs

    Which Fund Share Class is Best for Retirement?

    Mutual funds are a popular investment for retirement. Here's how to choose the best share class when investing in them.
  10. Retirement

    6 Robo-Advisors That Require Little to Start

    There are many well-regarded robo-advisor options that come with minimum investment amounts. Here are snapshots of a handful of them.
RELATED FAQS
  1. Am I losing the right to collect spousal Social Security benefits before I collect ...

    The short answer is yes, if you haven't reached age 62 by December 31, 2015. The Bipartisan Budget Act of 2015 disrupted ... Read Full Answer >>
  2. Where else can I save for retirement after I max out my Roth IRA?

    With uncertainty about the sustainability of Social Security benefits for future retirees, a lot of responsibility for saving ... Read Full Answer >>
  3. When can catch-up contributions start?

    Most qualified retirement plans such as 401(k), 403(b) and SIMPLE 401(k) plans, as well as individual retirement accounts ... Read Full Answer >>
  4. Who can make catch-up contributions?

    Most common retirement plans such as 401(k) and 403(b) plans, as well as individual retirement accounts (IRAs) allow you ... Read Full Answer >>
  5. Can you have both a 401(k) and an IRA?

    Investors can have both a 401(k) and an individual retirement account (IRA) at the same time, and it is quite common to have ... Read Full Answer >>
  6. Are 401(k) contributions tax deductible?

    All contributions to qualified retirement plans such as 401(k)s reduce taxable income, which lowers the total taxes owed. ... Read Full Answer >>
Hot Definitions
  1. Short Selling

    Short selling is the sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is ...
  2. Harry Potter Stock Index

    A collection of stocks from companies related to the "Harry Potter" series franchise. Created by StockPickr, this index seeks ...
  3. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  4. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  5. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  6. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
Trading Center