Retirement Planning Terms

A 401(k) is an employer-sponsored retirement account funded straight from your paycheck, often with matching money from your employer. For 2026 you can contribute up to $24,500, plus catch-up contributions starting at age 50, and choose between pre-tax (traditional) and after-tax (Roth) treatment.

An annuity is a contract with an insurance company: you pay a premium, and the insurer promises a stream of payments, often for life. It is the only private product that insures against outliving your money, but costs, surrender charges, and commission-driven sales make careful evaluation essential.

A backdoor Roth IRA is a two-step strategy for high earners who make too much to contribute to a Roth IRA directly. You make a nondeductible contribution to a traditional IRA, then convert it to a Roth IRA. Done cleanly, little or no tax is due, but the pro-rata rule can change that.

Barista FIRE is a semi-retired middle path: you leave full-time work before your portfolio can fully support you, using part-time income — often a job with health benefits — to cover the gap while your investments keep growing.

Coast FIRE means you've already saved enough that compound growth alone should carry your retirement accounts to a full retirement number by traditional retirement age — so you only need to earn enough to cover today's expenses.

Fat FIRE is financial independence with a generous budget — retiring early without downsizing your lifestyle, which requires a substantially larger portfolio than standard FIRE targets.

FIRE — Financial Independence, Retire Early — is a movement built around saving a very large share of income to reach financial independence and make retirement possible decades ahead of the traditional timeline.

A health savings account (HSA) is a tax-advantaged account for people with high-deductible health plans that offers a triple tax break--deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.

Held-away assets are accounts a financial advisor gives advice on but does not directly manage or bill against — most commonly workplace retirement plans like a 401(k), plus HSAs, 529 plans, and accounts you manage yourself.

Lean FIRE is financial independence on a deliberately frugal budget — reaching early retirement with a smaller portfolio by keeping annual spending low.

A Monte Carlo simulation is a planning technique that tests a financial plan against hundreds or thousands of randomized market scenarios to estimate the probability the plan succeeds.

A qualified charitable distribution (QCD) is a direct transfer from an IRA to charity, available starting at age 70 1/2, that counts toward your required minimum distribution and never shows up in your adjusted gross income at all.

A required minimum distribution (RMD) is the amount the IRS makes you withdraw from pre-tax retirement accounts each year once you reach a set age, currently 73, rising to 75 for people born in 1960 or later. The withdrawal is taxed as ordinary income, and skipping it triggers an excise tax.

A Retirement Income Certified Professional (RICP) is an advisor who has completed The American College of Financial Services' designation focused entirely on turning retirement savings into reliable lifetime income.

A Roth conversion moves money from a pre-tax retirement account, such as a traditional IRA or 401(k), into a Roth account. You pay ordinary income tax on the converted amount now in exchange for tax-free growth, tax-free qualified withdrawals, and no lifetime required minimum distributions later.

A Roth IRA is an individual retirement account funded with money you've already paid tax on. Investments grow tax-free, qualified withdrawals in retirement are tax-free, and the account never requires minimum distributions during your lifetime. The 2026 contribution limit is $7,500, plus a $1,100 catch-up at age 50.

A safe withdrawal rate is the percentage of a retirement portfolio you can withdraw in the first year, then adjust for inflation annually, with a high probability of the money lasting the rest of retirement. The famous 4% figure came from research on 30-year retirements and works better as a starting estimate than a rule.

A savings hierarchy is an ordered checklist for where each next dollar of savings should go — typically employer match first, then high-interest debt and an emergency fund, then tax-advantaged accounts, then taxable investing.

Sequence of returns risk is the danger that the order of investment returns, not just their average, damages a portfolio you're withdrawing from. Poor markets in the first years of retirement force you to sell more shares to fund the same spending, and the portfolio may never recover even if returns later improve.

Social Security retirement benefits are monthly, inflation-adjusted payments from the federal government, earned through payroll taxes over your working life. You can claim anytime from age 62 to 70; claiming before your full retirement age of 67 permanently shrinks the check, and each year you wait past it adds roughly 8%.

A traditional IRA is an individual retirement account you open on your own, where contributions may be tax-deductible, investments grow tax-deferred, and withdrawals in retirement are taxed as ordinary income. The 2026 contribution limit is $7,500, plus a $1,100 catch-up at age 50.