Scheduled Withdrawals Simulator

Scheduled withdrawals allow you to regularly take money from your life insurance policy while optimising taxation. The simulator calculates for each year:

• The taxable gains portion: Proportional to the gains/capital ratio at the time of withdrawal
• The applicable tax: Depending on the policy age (flat tax or reduced rate after 8 years) and the annual allowance
• The remaining capital: The policy continues to earn interest (estimated return of 2.5%) on the remaining balance

The advantage of scheduled withdrawals is spreading the tax burden over time and benefiting each year from the 4,600 euro (or 9,200 euro) allowance on policies older than 8 years.

Scheduled withdrawals are a mechanism particularly well suited to converting life insurance capital into regular income. They allow you to receive predetermined sums at set intervals while retaining control of your savings and optimising taxation. Here is everything you need to know about this arrangement.

How automatic withdrawals work

A scheduled withdrawal is an automatic, periodic withdrawal from your life insurance policy. You set the amount and frequency (monthly, quarterly, semi-annually or annually) with your insurer, who then executes the withdrawals automatically. Unlike a one-off withdrawal that requires a request each time, scheduled withdrawals work like a standing order: once set up, they execute without any action on your part. Most modern contracts allow you to configure scheduled withdrawals from your online account.

The tax advantage: the annual 4,600 or 9,200 euro allowance

The main benefit of scheduled withdrawals lies in the optimal use of the annual allowance applicable after 8 years of holding the policy. Each year, withdrawn gains benefit from an allowance of 4,600 euros for a single person and 9,200 euros for a couple filing jointly. By calibrating the annual withdrawal amount so that the taxable gains portion stays within this limit, it is possible to receive income from your life insurance without paying income tax. Only the 17.2% social charges remain due on the gains. This strategy is far more effective than a single large withdrawal that would significantly exceed the allowance.

An ideal income supplement in retirement

Scheduled withdrawals from life insurance are an excellent solution for supplementing retirement income. They offer several advantages over other solutions such as life annuities: you retain ownership of your capital (an annuity is irreversible), the amount can be changed at any time, you can suspend or stop withdrawals without penalty, and the undrawn capital continues to grow. Furthermore, in the event of death, the remaining capital is passed to designated beneficiaries under favourable tax conditions, which is not the case with a non-reversionary life annuity.

The taxation of each withdrawal: capital and gains

Each scheduled withdrawal is treated for tax purposes as a standard partial withdrawal. The amount withdrawn is split into two parts: a capital portion (premiums paid in) and a gains portion (accumulated interest and capital gains). Only the gains portion is taxable. The capital/gains ratio is calculated at the time of withdrawal based on the composition of your policy. For example, if your policy is worth 200,000 euros including 120,000 euros of premiums (capital) and 80,000 euros of gains, each 1,000 euro withdrawal will contain approximately 600 euros of capital (not taxed) and 400 euros of gains (taxable). This ratio changes with each withdrawal as the policy composition evolves. Early withdrawals typically contain more gains if the policy is in profit.

Setting up scheduled withdrawals requires advance planning to maximise tax benefits and tailor the strategy to your situation. Here are the key steps for optimal implementation.

Calculating the optimal withdrawal amount

The goal is to maximise the amount withdrawn while staying within the annual allowance. The calculation works as follows: if your policy contains 60% capital and 40% gains, and you are single (4,600 euro allowance), the maximum annual withdrawal without income tax is 4,600 / 40% = 11,500 euros. Indeed, of 11,500 euros withdrawn, 4,600 euros correspond to gains (covered by the allowance) and 6,900 euros correspond to capital (not taxed). Our simulator performs this calculation automatically and adjusts it each year based on the changing capital/gains ratio.

Choosing which assets to withdraw from first

If your policy is multi-asset, you can generally choose which assets to withdraw from. The optimal strategy is to withdraw first from assets with the lowest unrealised gains. For example, if you have a euro fund with 15% gains and unit-linked assets with 40% gains, withdraw from the euro fund first. This reduces the gains proportion in each withdrawal and allows you to take out more while staying within the allowance. Some contracts allow you to set a priority order for assets in scheduled withdrawals.

Coordinating with other income

Life insurance withdrawal taxation can interact with your other income. After 8 years, you can choose between the flat tax (PFU) of 7.5% (for premiums below 150,000 euros) or the progressive income-tax scale. If your overall income is low (modest retirement pension), the progressive scale may be more advantageous than the PFU, especially if you are in the 0% or 11% bracket. Conversely, with high income, the 7.5% PFU after allowance is generally preferable. It is therefore important to coordinate your scheduled withdrawals with all your income to choose the most favourable tax option.

Adjusting the amount each year

Your policy's capital/gains ratio evolves from year to year based on withdrawals made, asset performance and any additional contributions. It is recommended to review the scheduled withdrawal amount each year to ensure the taxable gains portion stays within the allowance. If your policy has performed well and gains have increased, you may need to reduce the withdrawal amount. Conversely, after several years of withdrawals, the gains proportion decreases and you can increase the amount without exceeding the allowance. This dynamic management is the key to a truly optimised scheduled withdrawal strategy. Feel free to use our simulator each year to fine-tune your strategy.

Scheduled withdrawals reach their full potential when integrated into an overall retirement income strategy. Used correctly, they allow you to effectively supplement retirement pensions while preserving capital and optimising taxation over the long term.

Determining the right amount based on your retirement budget

Before setting up scheduled withdrawals, it is essential to establish a detailed retirement budget. Assess your essential monthly expenses (housing, food, healthcare, insurance), discretionary expenses (leisure, travel) and foreseeable exceptional expenses (renovations, vehicle). Subtract your guaranteed income (basic and supplementary retirement pensions, rental income, other annuities) to determine the required supplement. The scheduled withdrawal amount should cover this shortfall without excessively depleting capital, so as to preserve a safety reserve for unexpected events and for later years of life when healthcare costs may increase considerably.

Staggering withdrawals across multiple policies

If you hold several life insurance policies, an effective strategy is to stagger withdrawals across different contracts. Start by withdrawing from the oldest policies (over 8 years) to benefit from the tax allowance. If some contracts contain fewer unrealised gains (high capital/gains ratio), prioritise withdrawals from these to minimise the taxable portion. Conversely, keep high-gain contracts for passing on to your beneficiaries as part of estate planning, where accumulated gains are transferred tax-free (article 990 I or gains exemption for premiums paid after age 70). This multi-policy approach allows you to simultaneously optimise withdrawal taxation and estate transfer.

Preserving capital sustainability over 25 to 30 years

Life expectancy in retirement can exceed 25 years. The main risk with scheduled withdrawals is depleting capital too quickly. A prudent rule is to withdraw no more than 3 to 4% of capital per year (the famous "sustainable withdrawal rate"). With an average return of 2.5 to 3% on euro funds and a diversified allocation, this pace allows capital to last 30 years or more. Also consider reducing withdrawal amounts when financial markets go through a difficult period, and increasing them during favourable periods. Finally, keep a liquidity reserve equivalent to 6 to 12 months of expenses outside of life insurance to avoid having to make emergency withdrawals under unfavourable conditions.

Anticipating tax-rule changes

Life insurance taxation has evolved several times in recent years (PFU reform in 2018, threshold changes). It is prudent to build a safety margin into your projections and to review your withdrawal strategy each year when filing your tax return. The choice between the 7.5% PFU (after 8 years, for premiums below 150,000 euros) and the progressive income-tax scale should be evaluated annually based on your overall income. A retiree with modest total income often benefits from choosing the progressive scale, while a household with significant additional income will prefer the PFU.