Retirement Glossary

Plain-English definitions of the terms used across this site and in retirement planning generally. Where a term deserves a full article, the definition links to it.

Numbers

401(k)

An employer-sponsored retirement account that lets you invest part of each paycheck before (traditional) or after (Roth) taxes. Many employers add matching contributions. See 401(k)s, IRAs, and Other Retirement Accounts.

403(b)

The 401(k)'s sibling for public schools, universities, and many nonprofits. Same core mechanics: payroll contributions, tax advantages, sometimes an employer match.

457 plan

A deferred-compensation plan for state and local government (and some nonprofit) employees, notable for more flexible access to funds after leaving the employer.

A

Annuity

A contract with an insurance company that converts a lump sum into a stream of income, often for life. See Annuities and Pensions.

Asset allocation

How a portfolio is divided among asset classes — most importantly the split between stocks and bonds, which drives both its growth potential and how wild the ride is. See Stocks, Bonds, and Asset Allocation.

B

Backtesting

Testing a strategy against what actually happened in history rather than against assumptions. This site backtests withdrawal strategies through every market period from 1928 to 2021.

Bear market

A prolonged, significant decline in stock prices. The historical record on this site includes every U.S. bear market since 1928.

Bond

A loan you make to a government or company in exchange for interest payments and the return of your principal. Steadier than stocks, but vulnerable to inflation.

Bucket strategy

Organizing retirement money into near-term cash, medium-term bonds, and long-term stocks so that spending never has to come from selling stocks in a downturn. See Withdrawal Strategies.

Bull market

A prolonged period of rising stock prices — the mirror of a bear market.

C

Capital gain

The profit from selling an investment for more than you paid. In taxable accounts, long-held gains are generally taxed at favorable rates.

COLA (cost-of-living adjustment)

An automatic increase that keeps income in step with inflation. Social Security benefits receive one; most pensions and fixed annuities do not.

Compound growth

Growth on top of previous growth. The reason time in the market is the most powerful lever in retirement saving.

Cost basis

What you originally paid for an investment. In taxable accounts, only the amount above basis is taxed when you sell.

CPI (Consumer Price Index)

The standard U.S. measure of inflation. This site uses each era's real CPI to model inflation-adjusted withdrawals.

D

Decumulation

The spending-down phase of retirement money — the reverse of accumulation, with its own distinct risks.

Diversification

Owning many different assets so that no single failure sinks the portfolio. Works because different assets do badly at different times.

Dividend

A cash payment some companies make to shareholders from profits. Historical stock returns on this site include reinvested dividends.

Dollar-cost averaging

Investing a fixed amount on a regular schedule regardless of market conditions, which automatically buys more shares when prices are low.

E

Employer match

Money an employer adds to your retirement plan contingent on your own contributions — part of your compensation, forfeited if unclaimed.

ETF (exchange-traded fund)

A fund that holds a basket of investments and trades on an exchange like a stock. A common low-cost way to own an index.

Expense ratio

The annual percentage of your money a fund keeps to run itself. It compounds against you the same way returns compound for you.

F

Fiduciary

An advisor legally required to act in your best interest, as opposed to one held only to looser suitability standards.

Full retirement age (FRA)

The age — 66 to 67 depending on birth year — at which you qualify for your unreduced Social Security benefit. See Social Security Basics.

G

Glide path

A planned shift in asset allocation over time, typically from stock-heavy toward bond-heavy as retirement nears.

Guardrails

A withdrawal approach that starts with a rate and adjusts spending up or down when the portfolio's trajectory crosses preset bands. See Withdrawal Strategies.

H

HSA (health savings account)

A tax-advantaged account for medical costs available with high-deductible health plans: deductible going in, tax-free growth, tax-free out for qualified expenses — which makes it a quiet retirement account too.

I

Index fund

A fund that simply owns everything in a market index at minimal cost rather than paying managers to pick winners.

Inflation

The general rise in prices that erodes what a dollar buys. The central quiet risk of a 30-year retirement. See Inflation: The Quiet Risk.

IRA (individual retirement account)

A tax-advantaged retirement account you open yourself, in traditional (tax-deferred) or Roth (tax-free growth) form.

IRMAA

Income-Related Monthly Adjustment Amount — the Medicare surcharge under which higher-income retirees pay larger Part B and D premiums.

L

Longevity risk

The risk of outliving your money — the happy problem that retirement planning exists to solve.

M

Medicare

The federal health-insurance program beginning at 65, in parts: A (hospital), B (outpatient), C (private bundled alternative), and D (drugs). See Healthcare and Medicare.

Medigap

Private supplemental insurance that pays many of the costs original Medicare leaves to you.

Mutual fund

A pooled investment fund bought and sold at its end-of-day price — the older cousin of the ETF.

N

Nominal vs. real

Nominal figures are raw dollars; real figures are adjusted for inflation. Over 30 years the difference is enormous, which is why this site labels every result with its mode.

P

Pension

An employer promise of lifetime income in retirement (a defined-benefit plan) — increasingly rare in the private sector, replaced by 401(k)-style plans.

Portfolio

Your full collection of investments, viewed as one thing with one allocation, rather than as separate accounts.

Q

QLAC (qualified longevity annuity contract)

A deferred annuity bought inside a retirement account whose income starts at an advanced age — insurance against a very long life.

R

Rebalancing

Periodically selling what has grown and buying what has lagged to restore your target allocation — a discipline that quietly enforces buy low, sell high.

Replacement ratio

Retirement income expressed as a fraction of pre-retirement income — a rough planning shorthand, less reliable than estimating actual spending.

Required minimum distribution (RMD)

The IRS-mandated annual withdrawal from tax-deferred accounts beginning at age 73 under current law. Roth IRAs are exempt during the owner's lifetime. See Taxes in Retirement.

Rollover

Moving money between retirement accounts (say, an old 401(k) into an IRA) without triggering taxes, when done correctly.

Roth

The after-tax flavor of retirement account: no deduction now, but qualified withdrawals — contributions and growth — are tax-free later.

Rule of 72

A mental-math shortcut: divide 72 by an annual growth (or inflation) rate to estimate how many years a quantity takes to double (or halve in purchasing power).

S

Safe withdrawal rate

The highest withdrawal rate that would have survived every historical period tested — a worst-case-based number, not an average. Explore per-period rates on the break-even analysis page.

Sequence-of-returns risk

The risk that bad market years arrive early in retirement, when withdrawals turn temporary declines into permanent losses — the central risk of decumulation. See Sequence-of-Returns Risk.

Social Security

The federal program providing inflation-adjusted lifetime income based on your earnings record, claimable between 62 and 70. See Social Security Basics.

Stock

Partial ownership of a company, with a claim on its future profits. The growth engine of most retirement portfolios, and the volatile part.

T

T-bill (Treasury bill)

Short-term U.S. government debt — the classic "cash" asset: safest, lowest return.

Target-date fund

A single fund that implements a glide path automatically, growing more conservative as its named retirement year approaches.

TIPS

Treasury Inflation-Protected Securities — government bonds whose principal adjusts with CPI, paying you to not worry about inflation.

Treasury bond

Longer-term U.S. government debt. This site's bond returns blend Treasury bills and 10-year Treasuries, as described on the methodology page.

Trinity study

The 1998 academic study that popularized success-rate tables for withdrawal rates, reinforcing the 4% guideline. See Where the 4% Rule Came From.

V

Vesting

The schedule on which employer contributions become truly yours. Your own contributions are always immediately vested.

Volatility

How much an investment's value swings. Uncomfortable during accumulation; genuinely dangerous during decumulation, when it combines with withdrawals.

W

Withdrawal rate

Annual withdrawals as a percentage of the starting portfolio — the number this entire site exists to stress-test. The classic 4% rule sets it at 4%, inflation-adjusted thereafter.

Official sources

• Investor.gov glossary — the SEC's investor glossary
• SSA.gov and Medicare.gov — program-specific terms

This article is educational only and is not financial, investment, tax, or legal advice. Rules and limits change; verify details with official sources or a qualified professional.