35+ retirement terms explained in plain English. No jargon, no fine print, no sales pitch. Just the knowledge you need to make informed decisions.
A retirement savings plan offered by employers. You contribute a portion of your paycheck before taxes, which lowers your taxable income now. Many employers match part of your contribution — that's free money. Your investments grow tax-deferred until you withdraw them in retirement.
Similar to a 401(k), but offered by public schools, hospitals, and nonprofits. Same tax advantages and contribution limits. If your employer is tax-exempt, this is likely your workplace retirement plan.
Extra money you're allowed to put into retirement accounts once you turn 50. For 401(k)s, that's an additional $7,500 per year on top of the regular limit. For IRAs, it's an extra $1,000. Designed to help people save more as they approach retirement.
Free money your employer adds to your 401(k) based on how much you contribute. A common match is 50 cents for every dollar you put in, up to 6% of your salary. Not contributing enough to get the full match is like leaving part of your paycheck on the table.
A personal retirement account you open on your own, separate from any employer plan. Traditional IRA contributions may be tax-deductible now, but you pay taxes when you withdraw. Available to anyone with earned income.
A retirement account where you contribute money you've already paid taxes on. The benefit: your money grows tax-free, and withdrawals in retirement are tax-free too. There are income limits to contribute directly.
The process by which you earn full ownership of your employer's matching contributions. Some companies vest immediately; others require you to work there for a number of years. If you leave before being fully vested, you may forfeit some or all of the employer match.
An annual increase to Social Security benefits designed to keep up with inflation. The adjustment is based on the Consumer Price Index. In years with low inflation, the COLA may be small or zero.
The boost you get for waiting to claim Social Security past your full retirement age. Your benefit increases by about 8% for each year you delay, up to age 70. After 70, there's no additional benefit to waiting.
If you claim Social Security before full retirement age and continue working, some of your benefits may be temporarily withheld if your earnings exceed a certain limit. The withheld amount isn't lost — it's added back after you reach FRA.
The age at which you're entitled to your full Social Security benefit — no reduction, no bonus. For anyone born in 1960 or later, FRA is 67. Claiming before FRA permanently reduces your benefit; waiting past FRA increases it.
Your calculated Social Security benefit at full retirement age. It's based on your average indexed monthly earnings over your 35 highest-earning years. Every SS benefit calculation starts with your PIA.
A federal program that provides monthly income to retirees, disabled individuals, and survivors of deceased workers. Funded through payroll taxes (FICA). Your benefit amount is based on your 35 highest-earning years.
A Social Security benefit available to a spouse (or ex-spouse, if married 10+ years) based on the other person's work record. The maximum spousal benefit is 50% of your spouse's PIA. You don't need your own work history to qualify.
A tax-advantaged account for people with high-deductible health plans. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are tax-free. After 65, you can use HSA funds for anything (though non-medical withdrawals are taxed as income).
Income-Related Monthly Adjustment Amount. A surcharge added to your Medicare Part B and Part D premiums if your income exceeds certain thresholds. Based on your tax return from two years prior. Can catch retirees off guard if they had a high-income year before retirement.
The federal health insurance program for people 65 and older (and some younger people with disabilities). It has four parts: A (hospital), B (medical), C (Advantage plans), and D (prescriptions). You must actively enroll during your initial enrollment period.
Private insurance plans that bundle Parts A, B, and usually D. Often include extras like dental, vision, and hearing. They may have network restrictions and different out-of-pocket costs than Original Medicare.
Covers inpatient hospital stays, skilled nursing facility care, hospice, and some home health care. Most people don't pay a premium for Part A if they or their spouse paid Medicare taxes for 10+ years.
Covers doctor visits, outpatient care, preventive services, and medical equipment. There's a monthly premium (income-based). If you miss your initial enrollment window, your premium goes up 10% for each year you were eligible but didn't enroll — permanently.
Private insurance that helps pay for costs Original Medicare doesn't cover, like copayments, coinsurance, and deductibles. Only works with Original Medicare — not with Advantage plans. Best to enroll during your Medigap Open Enrollment Period at 65.
Profit from selling an investment for more than you paid. Short-term gains (held less than a year) are taxed as ordinary income. Long-term gains (held over a year) get preferential tax rates — often 0% or 15% for retirees.
The minimum amount you must withdraw each year from traditional IRAs and 401(k)s once you reach a certain age. Currently age 73 (born 1951–1959) or 75 (born 1960+) under SECURE 2.0. The penalty for missing an RMD is 25% of the shortfall.
Moving money from a traditional IRA or 401(k) into a Roth IRA. You pay taxes on the converted amount now, but future withdrawals are tax-free. Often strategic in years when your income is lower than usual.
Legislation signed in December 2022 that changed several retirement rules. Key provisions: RMD age pushed to 73 (then 75 for those born 1960+), RMD penalty reduced from 50% to 25%, Roth 401(k)s no longer require RMDs, and enhanced catch-up contributions for ages 60–63.
Money that grows without being taxed until you withdraw it. Traditional 401(k)s and IRAs are tax-deferred — you get a tax break when you contribute, but pay income tax when you take the money out in retirement.
Money that's never taxed again once it's in the account. Roth IRAs and Roth 401(k)s are tax-free — you pay taxes on contributions upfront, but qualified withdrawals (including all growth) are completely tax-free.
The order in which you take money from different accounts in retirement to minimize taxes. A common approach: taxable accounts first, then tax-deferred (401k/IRA), then tax-free (Roth). The right sequence depends on your specific tax situation.
How your investments are divided among different types: stocks, bonds, cash, etc. Generally, you shift toward more conservative investments as you age, but even in retirement most advisors recommend keeping some stock exposure for growth.
The person or people you name to receive your retirement accounts, life insurance, or other assets when you die. These designations override your will, so keeping them updated is critical — especially after marriage, divorce, or a death.
A financial professional legally required to act in your best interest, not just sell you products that are "suitable." When choosing a financial advisor, asking whether they're a fiduciary is one of the most important questions you can ask.
A legal document that gives someone you trust the authority to make financial or medical decisions on your behalf if you become incapacitated. There are two types: financial (handles money) and healthcare (handles medical decisions).
A legal arrangement where you transfer assets into a trust during your lifetime. You maintain full control while alive, but the trust allows your assets to pass to beneficiaries without going through probate — saving time and keeping things private.
A retirement guideline suggesting you can withdraw 4% of your portfolio in the first year of retirement, then adjust for inflation each year, and your money should last about 30 years. It's a starting point, not a guarantee — many advisors now recommend more flexible approaches.
An insurance product that provides guaranteed income payments, often for life. Fixed annuities offer predictable payments; variable annuities fluctuate with investments; indexed annuities are tied to a market index with some protection. Fees and terms vary widely.
Insurance that covers costs Medicare doesn't: extended nursing home stays, assisted living, and in-home care. Premiums increase with age and can rise over time. Many advisors recommend considering it in your mid-50s to early 60s.
A 401(k) is offered through your employer, often with matching contributions. An IRA is an individual account you open yourself. Both offer tax advantages for retirement savings, but they have different contribution limits, tax rules, and investment options.
No. But understanding the basics — like how Social Security works, what Medicare covers, and how your retirement accounts are taxed — can save you thousands of dollars and help you avoid costly mistakes like missing enrollment windows or paying unnecessary penalties.
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Start Learning Free →Disclaimer: Belle Street Advisors is an educational platform — not a registered investment advisor, broker-dealer, or tax preparation service. Definitions on this page are simplified for educational purposes and may not capture every nuance of these financial concepts. This content does not constitute personalized financial, tax, or legal advice. Consult a qualified professional before making financial decisions.