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 Timeline screen and use the + button bottom right, or double click on the Timeline to create an Event.
- Alternatively in the Timing section within the Planned Withdrawals screen you can double click on the timeline to add a new event.
2. Next, go to Dashboard. Click on the + button bottom right and select Planned Withdrawals. 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 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 Amount Without Inflation' and input the monetary equivalent of 5% of the amount invested in the bond, or use the 'Max Without 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.
Tip- switch on inline help for a pop up help window on many of the data entry fields: Switching on Inline help in AdviserGo
5. In the Timing panel to the left hand side of the screen, select the appropriate start and end events for the withdrawals to occur. Note that if withdrawals are to continue until the funds run out, use Mortality as the end event.
6. Click Save and this withdrawal will appear in the Dashboard view under Planned Withdrawals. If you click on the bond entry you will also see the Planned Withdrawal in there.
Can planned withdrawals be changed?
If you need to increase/decrease a planned withdrawal you can do so in Dashboard and click on the appropriate Planned Withdrawals entry. You can Step up or down the withdrawal after it's started by using Steps.
7. Next in the bond entry select Withdrawal Limit to instruct the software how much it can take in ad hoc withdrawals on top of the planned withdrawals, if needed.
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.
Again the inline help feature is helpful here: Switching on Inline help in AdviserGo
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 Savings & Investments screen sets the initial withdrawal limit.
This limit can later be increased or decreased or ended altogether using the Steps screen in the bond entry
8. Before You Finish - Important settings that relate to tax-free withdrawals are found when entering the information for the bond
Entries for the bond’s Balance, 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 other important settings that can impact the tax calculation on withdrawals from bonds.
1. Enter the Remaining principal/cost basis.
2. Enter the number of Segments
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 >
What happens to funds after withdrawals are made from an account?
Following a Planned Withdrawal, these funds 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 depending on how the plan is set up, will be deposited into the owner(s) dedicated cash account (e.g. John’s Cash), until needed later to fulfil expenses (unless swept or transferred into another account).