What is a 'Systematic Withdrawal Schedule'

Systematic Withdrawal Schedule is a method of withdrawing funds from an annuity account, by which the annuitant withdraws funds from the account in specified amounts for a specified payment frequency. Annuitants are not guaranteed lifelong payments as they are with the standard annuitization method. With the systematic withdrawal schedule, one chooses instead to withdraw funds from an account until it is emptied, bearing the risk that the funds become depleted before one dies.

BREAKING DOWN 'Systematic Withdrawal Schedule'

Systematic withdrawals are often applied to mutual funds, annuities, and occasionally for brokerage accounts. Systematic withdrawal schedules allow for shares of investments to be liquidated to provide the stated amount of withdrawals. A systematic withdrawal schedule can be set up to withdraw every month, quarterly, semi-annually or annually, as desired.

Consider, for example, an annuitant owning four mutual funds. Fund A holds 35 percent of all funds, Fund B holds 30 percent, Fund C holds 20 percent and Fund D holds 15 percent. If the annuitant sets up a $2,000 monthly withdrawal, $700 (35 percent) of the withdrawal amount would come from Fund A, $600 (30 percent) would come from Fund B, $400 (20 percent) would come from Fund C and $300 (15 percent) would come from Fund D.

The advantages of a systematic withdrawal schedule are that one can streamline one’s wealth management retirement, particularly in one’s retirement years, and that it can also help come tax time. An annuitant choosing this withdrawal method instead of the annuitization method would not be limited to a small amount of funds every month and could, in fact, remove their funds from the account relatively quickly, should they desire to do so. The disadvantages of a systematic withdrawal schedule from an annuity, by not guaranteeing a lifelong income stream for the annuitant, places the risk of a longer-than-expected lifespan on the shoulders of the annuitant instead of on the insurance company offering the annuity.

Alternatives to Systematic Withdrawal Schedule

Alternatives to Systematic Withdrawal Schedule schemes include putting a time-based segmentation approach, i.e., bucket strategy, into place; buying an immediate annuity from an insurance company and living off the monthly benefit the company pays out; investing one’s savings and spending only the interest and dividends, leaving the principal untouched; and placing a year’s worth of withdrawals in a money market fund for monthly withdrawals, and replenishing the funds end-of-year by selling off investments with the highest rate of return.

  1. Annuitant

    An annuitant is a person who receives the benefits of an annuity ...
  2. Contingent Annuitant

    A contingent annuitant is someone designated by an annuitant ...
  3. Life Option

    An annuitization-method option for a typical annuity offered ...
  4. Annuitization Phase

    The Annuitization Phase is the period when the annuitant starts ...
  5. Period Certain

    Period certain is a life annuity option that allows the customer ...
  6. Guaranteed Lifetime Withdrawal ...

    A rider on a variable annuity that allows minimum withdrawals ...
Related Articles
  1. Retirement

    Explaining Types of Fixed Annuities

    Learn about this popular retirement tool, its pros and cons and how annuities work to create a guaranteed regular stream of retirement income.
  2. Retirement

    Deciphering Deferred Annuity Designations

    Tax deferred annuities can be complex arrangements. Discover some of the situations that arise when an owner or annuitant dies and how to reduce tax liability if you're the beneficiary.
  3. Retirement

    What Is the Best Age to Get an Annuity?

    Optimizing the benefits of an annuity means guaranteeing a stream of income you can't outlive.
  4. Retirement

    Buying Annuities in a Low Interest Rate World

    Learn if buying an annuity makes sense in a low interest rate environment. Also discover the different types of annuities and how interest rates affect them.
  5. Retirement

    Saving Money With A Private Annuity Trust

    Learn about a strategy that could help you reduce taxes, diversify your portfolio and generate income.
  6. Retirement

    The Cost Of Variable Annuity Guarantees

    These products tempt investors with some impressive benefits - but they come at a price.
  7. Retirement

    How a Variable Annuity Works After Retirement

    These investments can provide extra income after you retire. Here’s a guide to when and how you will receive the payout.
Hot Definitions
  1. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  2. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  3. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  4. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  5. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  6. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
Trading Center