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Life Expectancy Method Definition

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Updated March 08, 2023

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What Is the Life Expectancy Method?

The life expectancy method is a way of calculating individual retirement account (IRA) distribution payments by dividing the balance or total value of a retirement account by the policyholder’s anticipated length of life. The life expectancy method is the most straightforward method of calculating required minimum distributions (RMDs) for retirement accounts by the Internal Revenue Service (IRS).

Key Takeaways

The life expectancy method is the primary way of figuring out your RMD amounts.
RMDs are required distributions that must be withdrawn from certain retirement accounts once the owner reaches a designated age.
The RMD age used to be 72, but the passage of SECURE 2.0 Act increased the RMD age to 73.
The life expectancy method takes into account your actuarial life expectancy and the starting account balance.
The two most common ways of evaluating life expectancy are the term-certain and recalculation methods.

Understanding the Life Expectancy Method

RMDs are required distributions that must be withdrawn from certain retirement accounts once the owner reaches age 73. Please note that the IRS suspended RMDs for retirement accounts, including IRAs and 401(k)s for 2020, though this suspension has since expired.

The life expectancy method is used to calculate RMDs from traditional IRAs or qualified retirement accounts, such as 401(k) plans. The minimum withdrawal amounts must be taken from these accounts starting at age 73 (as increased by the SECURE 2.0 Act).

This method uses IRS life expectancy factors along with the value of your IRA in the year of distribution before that year’s withdrawal. This is, therefore, a variable method, and if your IRA value increases or decreases, the year’s distribution amount will increase or decrease accordingly. This is also the case when it comes to your life expectancy.

IRS actuarial tables help determine the life expectancy of the owner or the joint life expectancies of the owner and a beneficiary.

Types of Life Expectancy Methods

There are two types of life expectancy methods: the term-certain method and the recalculation method.

Term-Certain Method

In the term-certain method, distribution or withdrawal from the retirement account is based on your life expectancy at the time of the first withdrawal. With each following year, the account is steadily depleted as life expectancy reduces by one year. The retirement account will eventually be empty once you reach your life expectancy age. Thus, some people may completely run through their funds if they outlive their life expectancy.

Recalculation Method

To offset the risk of outliving annuity payments, some choose the recalculation method, which differs from the term-certain method by recalculating your life expectancy every year. In this case, you are withdrawing as little as possible from your account. However, if your beneficiary dies prematurely, you would have to refigure withdrawals based on your life expectancy alone.

Example of the Life Expectancy Method

Let’s look at the case of a 54-year-old single woman who chooses the term-certain method of life expectancy withdrawals. In this scenario, if the woman wants to begin receiving IRA distributions in 2021, she must first calculate the total account value as of Dec. 31, 2020, as well as her life expectancy according to IRS Publication 590 Appendix C. If the account value were $100,000 and her life expectancy is 30.5 years, the amount she can receive in distributions each year is $3,278.69.

The following year, the now 55-year-old would again take note of the account balance on Dec. 31 and divide the amount by 29.6, her new life expectancy. Essentially, the older she becomes, the shorter her life expectancy becomes, although this relationship is not linear.

What Is a Life Expectancy Table?

The IRS publishes an annual table of life expectancy in which the account owner's age corresponds to a life expectancy factor. The IRS revises this table every year, and the table is used to determine the RMD as the account balance of the owner is divided by the life expectancy factor from this table.

At What Age Should I Stop Investing in an IRA?

The SECURE Act of 2019 removed the age limit to contribute to a traditional IRA; as long as you have earned income, you may contribute up to that amount or the IRS limit to a traditional IRA. Roth IRAs also do not have an age limit. For taxpayers wanting to maximize their tax efficiency, it is advisable for them to continue contributing to an IRA even in retirement should they not need immediate access to that capital and want to capture as much tax benefit as possible.

At What Age Is IRA Withdrawals Tax Free?

Retirees may withdraw proceeds from their IRA account at age 59½ without restriction or penalty.

The Bottom Line

The IRS uses a life expectancy table to determine how much of a required minimum distribution an investment owner needs to take regarding their IRA. This life expectancy table is determined based off the owner's age, and the IRS revises these estimates each year. Investors who want to be mindful of how much they are required to withdraw during retirement should understand how their current age, current investment balance, and life expectancy will dictate their RMD.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

Internal Revenue Service. "Retirement Topics — Required Minimum Distributions (RMDs)."
Internal Revenue Service. "IRS: Seniors, Retirees Not Required To Take Distributions From Retirement Accounts This Year Under New Law."
U.S. Congress. "H.R.2617 - Consolidated Appropriations Act, 2023." Division T: Section 107.
Internal Revenue Service. "Traditional and Roth IRAs."
U.S. Congress. "H.R. 1994 - Setting Every Community Up for Retirement Enhancement Act of 2019." Title 1: Section 107.

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