How to Schedule Planned Withdrawals from a Bond (Onshore or Offshore Life Fund)
Bonds are by default subject to the software's normal expense fulfillment logic which will take ad hoc withdrawals from liquid assets (savings, unwrapped investments, ISAs and bonds) to pay for expenses, after income, other credits, and ready cash is exhausted in a given year.
You may, however, set regular income taken from a bond, withdrawing the 5% in tax free principal for 20 years, for example. Planned withdrawals for a bond are scheduled in the Planned Withdrawals screen.
Timing the Start and End of Withdrawals
To schedule planned withdrawals from a bond, first consider the timing. You will need to have an event in the timeline to schedule the beginning and end of these withdrawals.
A suitable event for this purpose may already be present in the timeline. For example, if you want to begin withdrawals in the very first year of the plan, simply use the Start event. If withdrawals are to begin at the owner’s retirement, you might use his or her Retirement event. Otherwise, you will probably begin by adding an event to the timeline.
1. If you do need to add an event to schedule the start and/or end of withdrawals, either:
- Go to the Time screen to drag and drop an event icon over the appropriate year/age in the timeline (double clicking the text underneath the event, enter a meaningful name and press Enter);
- Or find the Time panel located on the right side of any of the data entry screens (the Investments or Planned Withdrawals screen for example), select the Event tab, click the New Event button in the bottom-right corner of the tab, and enter the name, age, and owner of the event. Read more >>
2. Next, go to the Planned Withdrawals screen and in the Name box at the top of the screen enter a name for the withdrawal.
3. Click on the bond in the list of Available Accounts then click the arrow pointing right to move it to the list of Selected Accounts.
4. In the Scheduled Withdrawal Type section select the most relevant withdrawal type and input the withdrawal amount. Note that the % option will withdrawal a percentage of the account value, not a percentage of the amount invested.
To withdraw the 5% tax deferred amount, either use 'fixed w/o inflation' and input the monetary equivalent of 5% of the amount invested in the bond, or use the 'max w/o penalty' option. However, note that with the latter option, you may get a large withdrawal in the first year if there are cumulative 5% withdrawals available.
5. In the Time panel to the right hand side of the screen, click on the event you want to use to start the withdrawals so a green dot appears. Then click on the event you want to use to end the withdrawals so a red dot appears. Note that if withdrawals are to continue until the funds run out, use Mortality as the end event.
6. Click Add and this withdrawal will appear in the Ledger on the right hand side of the screen.
Can planned withdrawals be changed?
If you need to increase/decrease a planned withdrawal you can do so in the Planned Withdrawals screen using Advanced Settings > Step Up/Step Down.
You can learn more about planned withdrawals here.
7. Next go to the Investments screen to instruct the software how much it can take in ad hoc withdrawals on top of the planned withdrawals, if needed. In the Investments screen, select the bond in the Ledger on the right hand side of the screen. Then expand Advanced Settings > Withdrawals Limit.
This panel allows you to set limits on what the software might withdraw from the bond in addition to your regularly scheduled withdrawals. These ad hoc withdrawals would only be taken if the time comes when additional top-up income is needed from the bond in order to help pay for scheduled expenses. We call these limits on possible future draws of top-up income Withdrawal Limits.
By default, this is set to 'as needed' which means the software can take as much as it needs from the bond, if required to fund expenses, on top of the planned withdrawals.
You may, however, set the software to Scheduled Only, meaning the software can only draw what is scheduled to be withdrawn annually from the bond, as set in the planned withdrawals screen, and no more.
Note: Withdrawal limits could cause artificial shortfalls in the cash flow forecast. Read more >>
Can withdrawal limits be changed?
The settings you enter on the Withdrawals Limits in the Investments screen sets the initial withdrawal limit.
This limit can later be increased or decreased or ended altogether using the Investment screen's Advanced Settings > Step Up / Step Down panel.
Tip, Applying Tax Optimization Strategy to Withdrawals: Apply Tax Optimisation Strategy is a special setting for bonds that attempts to calculate the most tax efficient strategy for obtaining funds from a segmented life fund. Read more >
8. Before You Finish - Two important settings that relate to tax free withdrawals are found Advanced Settings.
Entries for the bond’s Current Value, Year Purchased , Purchase Value (i.e. the current cost basis), will all come into play in determining how much can be taken tax free, especially in the first few years of withdrawals. There are also two important and easily overlooked settings that can impact the tax calculation on withdrawals from bonds. Both are found under Advanced Settings.
Advanced Settings > Previous Withdrawals: Enter the remaining principal/cost basis.
Advanced Settings > Life Fund Segments: If the bond is segmented, be sure to enter the current and original number of segments in the bond.
What happens to funds after withdrawals are made from an account?
Following withdrawal, these funds will flow into general cash where they will first be made available to cover expenses and make scheduled contributions to other accounts.
Any funds remaining may be considered spent with other unallocated habitual income or will be deposited into the owner(s) dedicated cash account (e.g. John’s Cash), until needed later to fulfill expenses (depending on how the plan is set up) or unless swept or transferred into another account. Read more >>