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.

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 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.