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. Term Certain Annuity

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

    An investing tool used by individuals to earn and earmark funds ...
  5. Life Expectancy

    1. The age until which a person is expected to live. 2. The ...
  6. See-Through Trust

    A trust that is treated as the beneficiary of an individual retirement ...
RELATED FAQS
  1. When can benefits be received from a provident fund?

    Like most retirement savings vehicles, participants in provident funds are eligible to receive benefits at retirement. However, ... Read Full Answer >>
  2. Is Social Security Income a perpetuity?

    Because Social Security income does not continue indefinitely, it cannot be classified as a perpetuity. What Is a Perpetuity? A ... Read Full Answer >>
  3. What types of investments are allowed in a provident fund?

    Different provident funds have different investment rules and restrictions. The allowable investments in an Indian provident ... Read Full Answer >>
  4. How does a provident fund compare to U.S. Social Security?

    A provident fund shares many attributes of the U.S. Social Security program, including government sponsorship and set contribution ... Read Full Answer >>
  5. How are benefits from a provident fund taxed?

    Not all provident fund benefits are treated equally, even in the same country. Thailand, for instance, has three separate ... Read Full Answer >>
  6. I'm in my 50s. Should I still participate in my company's Roth 401(k)?

    Participating in an employer-sponsored Roth 401(k) program is an excellent way to plan for retirement at any age. The longer ... Read Full Answer >>
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

    Pension Annuity vs. Lump Sum: Which is Best?

    Which pension distribution option best serves your client, a pension annuity or a lump-sum payout?
  7. Retirement

    Roth 401(k) Vs. Roth IRA: Which One Is Better?

    It all depends on your age, your income - and your plans for your retirement nest egg.
  8. Investing

    Two Heads Are Better Than One In Finances

    Given the importance of a retirement account, having professional help with savings accounts is far more important than a personal chef or chauffer.
  9. Retirement

    Does it Make Sense to Have an MLP in an IRA?

    Here's why MLPs should — and shouldn't — be considered for an IRA.
  10. Professionals

    How Retirees Should Approach Interest Rate Hikes

    Here's what retirees can do if interest rates rise.

You May Also Like

Hot Definitions
  1. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  2. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  3. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  4. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  5. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  6. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!