Glossary of Retirement Planning Terms
Understanding retirement planning requires familiarity with specialized terms. This glossary provides clear definitions for the most commonly used concepts in retirement income planning, Social Security, Medicare, and investment strategies.
Bucket Strategy - An approach that divides retirement assets into separate "buckets" based on when the money will be needed, typically short-term (cash), medium-term (bonds), and long-term (stocks).
Catch-Up Contribution - Additional retirement account contributions allowed for individuals age 50 and older, beyond standard contribution limits ($7,500 extra for 401(k) plans and $1,000 extra for IRAs in 2024).
COLA (Cost-of-Living Adjustment) - An annual increase to Social Security benefits based on inflation, calculated using the Consumer Price Index for Urban Wage Earners (CPI-W).
Delayed Retirement Credits - Increases to Social Security benefits earned by waiting to claim beyond Full Retirement Age, adding 8% per year up to age 70.
DIA (Deferred Income Annuity) - An annuity purchased now that begins paying income at a future date, often used to provide guaranteed income starting at age 80 or 85.
Earnings Test - A Social Security rule that reduces benefits for workers who claim before Full Retirement Age and earn above certain thresholds ($22,320 in 2024), with $1 withheld for every $2 earned above the limit.
FRA (Full Retirement Age) - The age at which you qualify for 100% of your Social Security retirement benefit, ranging from 66 to 67 depending on birth year.
IRMAA (Income-Related Monthly Adjustment Amount) - A surcharge added to Medicare Part B and Part D premiums for beneficiaries with modified adjusted gross income above certain thresholds.
Longevity Risk - The risk of outliving your retirement savings, which increases as life expectancy rises.
Medicare Part A - Hospital insurance that covers inpatient hospital stays, skilled nursing facility care, hospice, and some home health services, with most people paying no premium if they or their spouse paid Medicare taxes for 10+ years.
Medicare Part B - Medical insurance that covers doctor visits, outpatient care, preventive services, and medical equipment, with a standard monthly premium ($174.70 in 2024).
Medicare Part C (Medicare Advantage) - Private insurance plans that combine Part A, Part B, and usually Part D coverage as an alternative to Original Medicare, often with additional benefits.
Medicare Part D - Prescription drug coverage offered through private insurance plans, either standalone or as part of Medicare Advantage.
Medigap (Medicare Supplement) - Private insurance policies that help pay for costs not covered by Original Medicare, such as copayments, coinsurance, and deductibles.
PIA (Primary Insurance Amount) - The Social Security benefit amount you would receive at Full Retirement Age, calculated based on your 35 highest-earning years.
QLAC (Qualified Longevity Annuity Contract) - A deferred annuity purchased within a retirement account that can begin payments as late as age 85, with premiums up to $200,000 excluded from RMD calculations.
QCD (Qualified Charitable Distribution) - A direct transfer of up to $105,000 per year (2024) from an IRA to a qualified charity for individuals age 70½ and older, excluded from taxable income.
RILA (Registered Index-Linked Annuity) - An annuity that provides returns linked to a market index with some downside protection through a buffer or floor, also called a buffered annuity.
RMD (Required Minimum Distribution) - The minimum amount that must be withdrawn annually from tax-deferred retirement accounts starting at age 73 (as of 2023).
Rollover - The movement of retirement funds from one account to another, such as from a 401(k) to an IRA, without incurring taxes if completed properly.
Roth Conversion - The transfer of funds from a traditional IRA or 401(k) to a Roth IRA, with taxes paid on the converted amount but no taxes on future qualified withdrawals.
Sequence of Returns Risk (Sequence Risk) - The risk that poor investment returns in the early years of retirement, combined with withdrawals, can permanently damage portfolio sustainability even if long-term average returns are acceptable.
SPIA (Single Premium Immediate Annuity) - An annuity purchased with a lump sum that begins paying income immediately, providing guaranteed lifetime income.
Spousal Benefit - A Social Security benefit available to a spouse equal to up to 50% of the higher earner's Primary Insurance Amount, available at Full Retirement Age.
Stretch IRA - A strategy that allowed non-spouse beneficiaries to take distributions from inherited IRAs over their lifetime, largely eliminated by the SECURE Act's 10-year rule for most beneficiaries.
Survivor Benefit - A Social Security benefit paid to the surviving spouse of a deceased worker, equal to up to 100% of the deceased's benefit amount.
Tax-Deferred Account - A retirement account such as a traditional IRA or 401(k) where contributions may be tax-deductible and growth is not taxed until withdrawal.
Tax-Free Account - A retirement account such as a Roth IRA or Roth 401(k) where contributions are made with after-tax dollars but qualified withdrawals are completely tax-free.
Withdrawal Rate - The percentage of a retirement portfolio withdrawn annually for living expenses, commonly discussed as a "4% rule" or "safe withdrawal rate" in retirement planning.
4% Rule - A retirement spending guideline suggesting that withdrawing 4% of your portfolio in the first year of retirement, then adjusting for inflation annually, provides a high probability of not running out of money over 30 years.