Fixed Amortization Method
The government has all kinds of stipulations as to when and how and if you can pull out retirement savings early. (Warning: Try realllllly hard to not do this, as it comes with all kinds of tax penalties.) This method uses IRS tables to calculate an early retiree’s life expectancy (which is mildly creepy, but okay) and figure out how much that person should receive each month from their IRA. It’s important to note that, once that monthly amount is locked in, whether we’re 58 years old or just turned 25, we can’t adjust that amount until we turn 65. Well, we can, but we’d have to pay big penalties. We also can’t stop the withdrawals, unless we want to-–that’s right-–pay a big penalty.
On the plus side, early retirees who opt for the fixed amortization method usually end up getting higher monthly payouts than those who opt for the fixed annuitization or required minimum distribution methods. On the neg, since it is a fixed payment, changes in the general economy (like rising inflation) won’t be taken into account, which could result in us getting less money each month than we might otherwise.
Related or Semi-related Video
Finance: What is Bond Amortization?7 Views
Finance a la shmoop what is bond amortization? okay fancy term easy
concept the basic idea is that you have to "revalue" what a bond is
actually worth each period which usually means twice a year because bonds pay [Monthly calendar appears]
interest on the you know semester system yeah twice a year so let's say you've
paid seven hundred bucks for a bond with a 5% coupon which comes due for a
thousand bucks in ten years over that time you'll have received two things the
5% per year interest from the bond in cash paid along the way and the [5% interest per year appears]
appreciation of the 700 bucks to become the thousand dollar par value at which
point it will eventually pay back its principal so to amortize the $300 of
appreciation of that bond over ten years while you could attribute 30 bucks a
year in appreciation each year such that after we'll say three and a half years
you'd hold the bond as having appreciated 3.5 times 30 bucks or $105 [Straight line appreciation formula appears]
in appreciation making the bond worth at that point in time eight hundred five
dollars oh yeah fancy but also pretty easy
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