Retirement Terms

Retirement Accounts & Plans

• 401(k): A retirement savings plan sponsored by an employer. Employees contribute a portion of their salary to the plan, and employers may also make matching contributions.

• 403(b): Similar to a 401(k), but typically offered by non-profit organizations, public schools, and self-employed ministers.

• IRA (Individual Retirement Arrangement/Account): A personal retirement savings plan that offers tax advantages.

  • Traditional IRA: Contributions may be tax-deductible, and earnings grow tax-deferred. Withdrawals in retirement are taxed.

  • Roth IRA: Contributions are made with after-tax dollars, and qualified withdrawals in retirement are tax-free.

• SEP IRA (Simplified Employee Pension): A retirement plan for self-employed individuals and small business owners.

• SIMPLE IRA (Savings Incentive Match Plan for Employees): A retirement plan for small businesses with 100 or fewer employees.

• Pension Plan: A defined benefit retirement plan, typically funded by an employer, that provides a guaranteed income stream in retirement.

• Defined Contribution Plan: A retirement plan where contributions are made to individual accounts, and the retirement benefit depends on the investment performance of those contributions (e.g., 401(k), 403(b), IRA).

• Defined Benefit Plan: A retirement plan that promises a specific monthly benefit at retirement, often based on salary and years of service (e.g., traditional pension).

• Rollover: Moving funds from one retirement account to another (e.g., from a 401(k) to an IRA).

• Roth Conversion: Converting funds from a Traditional IRA or 401(k) to a Roth IRA, requiring taxes to be paid on the converted amount in the year of conversion.

Contributions & Withdrawals

• Contribution Limit: The maximum amount of money an individual can contribute to a retirement account in a given year, as set by the IRS.

• Catch-Up Contributions: Additional contributions allowed for individuals aged 50 and over to certain retirement accounts.

• Employer Match: Contributions made by an employer to an employee's retirement account, often matching a percentage of the employee's contributions.

• Vesting: The process by which an employee gains full ownership of employer contributions to their retirement plan.

• Pre-Tax Contributions: Contributions made before taxes are deducted from your paycheck, reducing your current taxable income.

• After-Tax Contributions: Contributions made after taxes have been deducted from your paycheck.

• Distribution: A withdrawal of funds from a retirement account.

• Early Withdrawal Penalty: A tax penalty (typically 10%) applied to withdrawals from retirement accounts before age 59½, with some exceptions.

• Required Minimum Distribution (RMD): The minimum amount that must be withdrawn from certain retirement accounts annually once an individual reaches a specific age (currently 73).

Investment & Growth

• Asset Allocation: The strategy of dividing an investment portfolio among different asset categories, such as stocks, bonds, and cash.

• Diversification: Spreading investments across various assets to reduce risk.

• Compounding: The process of earning returns on your initial investment as well as on the accumulated interest or earnings from previous periods.

• Rate of Return: The gain or loss of an investment over a specified period, expressed as a percentage.

• Risk Tolerance: An investor's willingness to take on investment risk in exchange for potential higher returns.

• Investment Portfolio: A collection of financial assets, such as stocks, bonds, and mutual funds, owned by an individual or institution.

• Mutual Fund: A professionally managed investment fund that pools money from many investors to purchase a diversified portfolio of securities.

• ETF (Exchange-Traded Fund): A type of investment fund that trades on stock exchanges, similar to individual stocks.

• Target-Date Fund: A mutual fund that automatically adjusts its asset allocation over time, becoming more conservative as the target retirement date approaches.

• Index Fund: A type of mutual fund or ETF that aims to replicate the performance of a specific market index (e.g., S&P 500).

• Expense Ratio: The annual fee charged by a mutual fund or ETF to cover its operating expenses.

• Market Volatility: The degree of variation of a trading price series over time, often measured by the standard deviation of returns.

Financial Planning & Concepts

• Financial Advisor: A professional who provides financial guidance and helps individuals manage their money and plan for financial goals.

• Retirement Planning: The process of setting financial goals for retirement and developing a strategy to achieve them.

• Financial Independence: The state of having enough income or wealth to cover one's living expenses without needing to work.

• Net Worth: The value of all financial and non-financial assets owned, minus the value of all liabilities (debts).

• Budget: A detailed plan of how to spend and save money over a specific period.

• Emergency Fund: Money set aside to cover unexpected expenses, typically 3-6 months of living expenses.

• Inflation: The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.

• Cost of Living: The amount of money needed to sustain a certain standard of living, including basic expenses such as housing, food, taxes, and healthcare.

• Social Security: A federal insurance program that provides benefits to retirees, the disabled, and survivors of deceased workers.

• Medicare: A federal health insurance program for people aged 65 or older, certain younger people with disabilities, and people with End-Stage Renal Disease.

• Annuity: A financial product sold by financial institutions that is designed to accept and grow funds from an individual and then pay out a stream of payments at a later point in time.

• Estate Planning: The process of arranging for the management and disposal of a person's estate during their life and after death.

• Long-Term Care Insurance: Insurance that helps cover the costs of long-term care services, such as nursing home care, assisted living, or in-home care.

• Fiduciary: A person or organization that acts on behalf of another person or persons, legally bound to act in their best interestsWrite your text here...