A
- 401(k)
- An employer-sponsored retirement savings plan that allows employees to contribute pre-tax dollars, often with an employer match. Contributions grow tax-deferred until withdrawal in retirement.
- 403(b)
- A retirement plan similar to a 401(k) but available to employees of public schools, non-profits, and certain religious organizations.
- Adjusted Gross Income (AGI)
- Your total gross income minus specific deductions. AGI determines eligibility for many tax benefits and affects Medicare premium surcharges (IRMAA).
- Annuity
- A financial product that provides a stream of payments over time, typically used to create guaranteed income in retirement. Can be fixed, variable, or indexed.
- Asset Allocation
- The strategy of dividing investments among different asset classes (stocks, bonds, cash) to balance risk and return based on your goals, timeline, and risk tolerance.
B
- Beneficiary
- The person or entity designated to receive the assets from a retirement account, life insurance policy, or trust upon the owner's death.
- Bond
- A fixed-income investment where you lend money to a government or corporation in exchange for periodic interest payments and the return of principal at maturity.
- Bucket Strategy
- A retirement income strategy that divides savings into separate "buckets" based on when the money will be needed: short-term (cash), medium-term (bonds), and long-term (stocks).
C
- Capital Gains
- The profit earned from selling an investment for more than its purchase price. Long-term capital gains (assets held over one year) are taxed at lower rates than ordinary income.
- Catch-Up Contribution
- Additional retirement account contributions allowed for individuals aged 50 and older, above the standard annual limit.
- COLA (Cost-of-Living Adjustment)
- An annual increase to Social Security benefits designed to keep pace with inflation, based on the Consumer Price Index.
- Compound Interest
- Interest earned on both the initial principal and previously accumulated interest. The key driver of long-term investment growth.
D
- Defined Benefit Plan
- A traditional pension plan where the employer promises a specific monthly benefit at retirement, typically based on salary and years of service.
- Defined Contribution Plan
- A retirement plan (like a 401(k)) where the employee and/or employer contribute a defined amount, but the final benefit depends on investment performance.
- Diversification
- Spreading investments across various asset classes, sectors, and geographies to reduce risk. The principle of not putting all your eggs in one basket.
E
- Early Withdrawal Penalty
- A 10% additional tax imposed on most distributions from retirement accounts taken before age 59½, on top of regular income tax.
- Estate Planning
- The process of arranging for the management and distribution of your assets after death, including wills, trusts, powers of attorney, and healthcare directives.
- Employer Match
- Contributions an employer makes to an employee's retirement plan based on the employee's own contributions, often expressed as a percentage (e.g., 50% match up to 6% of salary).
F
- FICA
- Federal Insurance Contributions Act — the payroll tax that funds Social Security (6.2%) and Medicare (1.45%), paid by both employees and employers.
- Fiduciary
- A person or organization legally obligated to act in the best interest of another party. Fee-only financial advisors typically operate as fiduciaries.
- FIRE (Financial Independence, Retire Early)
- A movement focused on extreme savings and investment to achieve financial independence and retire well before the traditional age of 65.
- Full Retirement Age (FRA)
- The age at which you qualify for full Social Security retirement benefits. Currently 66–67 depending on your birth year.
H
- HSA (Health Savings Account)
- A tax-advantaged account for individuals with high-deductible health plans. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free.
I
- Inflation
- The rate at which the general price level rises over time, eroding purchasing power. A critical factor in retirement planning since your money must last decades.
- IRA (Individual Retirement Account)
- A tax-advantaged personal retirement account. Traditional IRAs offer tax-deductible contributions; Roth IRAs offer tax-free withdrawals in retirement.
- IRMAA
- Income-Related Monthly Adjustment Amount — a surcharge added to Medicare Part B and Part D premiums for higher-income beneficiaries.
M
- Medicare
- Federal health insurance for people 65 and older (and some younger people with disabilities). Includes Part A (hospital), Part B (medical), Part C (Advantage), and Part D (prescriptions).
- Medigap
- Supplemental insurance policies sold by private companies to fill gaps in Original Medicare coverage, such as copayments, coinsurance, and deductibles.
- Medicare Advantage (Part C)
- An alternative to Original Medicare offered by private insurers. Often includes additional benefits like dental, vision, and prescription drug coverage in a single plan.
P
- Pension
- A defined benefit retirement plan funded by an employer that provides a fixed monthly payment to retirees based on years of service and salary history.
- Power of Attorney
- A legal document granting someone authority to make financial or healthcare decisions on your behalf if you become incapacitated.
R
- Required Minimum Distribution (RMD)
- The minimum amount you must withdraw annually from tax-deferred retirement accounts (traditional IRAs, 401(k)s) starting at age 73 (as of 2023). Failure to withdraw results in a 25% penalty.
- Rollover
- Moving retirement funds from one account to another (e.g., 401(k) to IRA) without triggering taxes or penalties, as long as the transfer is completed within 60 days or done as a direct trustee-to-trustee transfer.
- Roth Conversion
- Transferring funds from a traditional IRA or 401(k) to a Roth IRA. You pay income tax on the converted amount now, but future withdrawals are tax-free.
- Roth IRA
- A retirement account funded with after-tax dollars. Qualified withdrawals in retirement (after age 59½ and five years) are completely tax-free and not subject to RMDs.
S
- Sequence of Returns Risk
- The risk that poor investment returns in the early years of retirement will deplete your portfolio faster than expected, even if average long-term returns are adequate.
- Social Security
- A federal program that provides retirement income, disability benefits, and survivor benefits funded through payroll taxes. Benefits are based on your 35 highest-earning years.
- Spousal Benefit
- A Social Security benefit available to a spouse (or ex-spouse in some cases) equal to up to 50% of the higher-earning partner's full retirement benefit.
T
- Target-Date Fund
- A mutual fund that automatically adjusts its asset allocation from aggressive (more stocks) to conservative (more bonds) as you approach a target retirement year.
- Tax-Deferred
- An investment whose earnings (interest, dividends, capital gains) are not taxed until the money is withdrawn, as with traditional 401(k)s and IRAs.
- Traditional IRA
- An individual retirement account where contributions may be tax-deductible. Earnings grow tax-deferred, and withdrawals in retirement are taxed as ordinary income.
- Trust
- A legal arrangement where a trustee holds and manages assets on behalf of beneficiaries. Used in estate planning to control asset distribution and potentially reduce estate taxes.
V
- Vesting
- The process by which an employee earns the right to keep employer contributions to a retirement plan. A common vesting schedule is 3–6 years for full ownership.
W
- Withdrawal Rate
- The percentage of your retirement portfolio you withdraw each year. The widely cited "4% rule" suggests withdrawing 4% in the first year and adjusting for inflation thereafter.