A withdrawal plan is a procedure that is sometimes established as a schedule of payouts associated with a mutual fund. The plan will provide for periodic payments to be remitted to the mutual fund investor. Generally, the amount of the payments will be a fixed amount that is deducted directly from the balance contained within the mutual fund account.
Withdrawal plans are often employed as a means of setting up a consistent flow of revenue to an individual. The approach may be employed as part of a trust or family corporation setup, with each child receiving a monthly or quarterly payment from the mutual fund. Using a withdrawal plan in this manner helps to ensure that each child is provided for properly and has at least a minimum amount of money from the estate on an ongoing basis. For parents who wish to provide ongoing support for children with disabilities or other health issues, a withdrawal plan may be a practical means of providing security after the parents are deceased.
In other applications, the withdrawal plan approach is attractive to many mutual fund investors as it allows each investor to receive funds that may be used for a wide range of purposes. The proceeds can be deposited into college funds for the kids, set aside as money for vacations or other travel, or function as seed money for other types of investments. Many investors choose to make use of a withdrawal plan as a means of funding important projects that are above and beyond the usual monthly expenses that are covered by salaries and similar benefits.
Another key application of the withdrawal fund is as a means of support during retirement. The receipt of regular payments can be utilized to augment the income received from other retirement plans, thus helping the investor to maintain a higher standard of living even in the face of rising costs. If this is the intended purpose for the withdrawal plan, it is important to keep in mind that because the payments are fixed, the payments may be funded by a combination of returns on the investments made by the mutual fund and selling off shares if necessary.
