Glossary of Terms
NewRetirement Terms
Other Common Terms
4% Rule
A traditional guideline used to determine how much money someone can safely withdraw/spend from their retirement accounts each year.
AGI
Adjusted Gross Income.
ACA
Affordable Care Act (also known as Obamacare).
Annuity
An agreement between an individual (contract owner) and an insurance company. The contract owner gives the company a specific amount of money and, in exchange, the company agrees to provide an individual(s) with income.
Asset Allocation
The proportion of a portfolio allocated to particular asset classes.
Capital Gains
Gains incurred as a result of selling shares above their cost basis.
COLA
Cost of living adjustment.
Compound interest
Interest calculated on investment interest or returns.
Cost Basis
The original value of an asset for tax purposes.
DAF
Donor advised fund. An investment account for supporting charitable organizations.
Default Account
You may see an account labeled “Other Savings” on your charts. The tool will automatically default to choose "Other Savings" for your excess income. You have the ability to select any of your after-tax accounts instead of the default account in My Plan> Money Flows > Excess Income.
Deficit
Once all of your savings are depleted, the Planner will resort to modeling debt. We refer to this as a deficit.
Dividend
A sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits (or reserves).
Earnings Limit
The amount of income an individual may incur without a decrease in their Social Security benefit.
Emergency Fund
3 to 6 months of expenses to serve as a buffer in the event of job loss.
Employer Match
A practice where a company contributes a "matching" percentage of the employee contribution to an employee's 401k.
Estate
Assets and liabilities that remain after one's death.
Excess Income
Excess income is money that is not earmarked in your plan to be saved or spent and can be accessed through My Plan > Money Flows. You have the ability to designate any of your After-Tax accounts by pressing the ✎ (pencil) icon when asked “How should we handle excess income?”
Expense Hierarchy
The Expense Hierarchy refers to the Planner's default functionality When the income coming into the plan is not enough to fund the expenses going out, the Planner will draw down from savings in the following order:
Taxable Savings
Tax-Deferred Accounts
Roth Accounts
HSAs
Within each category, the growth rate on accounts will influence the order of withdrawals. Accounts with the lowest growth rate will be used first, allowing accounts with higher growth rates to continue to grow for the longest period of time.
FICA
Tax taken out of workers’ paychecks for Social Security and Medicare.
Financial Wellness
Having a clear financial plan focused on goals relative to how individuals want to spend their time, what’s important to them, their values and their lifestyle, knowing they will have the income they need to support their dreams.
Full Retirement Age
Age when one may claim their full Social Security retirement benefit.
Future Value
The future value formula estimates what an investment will be worth at a point in the future, also referred to as "future dollars." If you need to determine the future value of an expense, you can easily use a financial calculator, Excel or Sheets FV function, or web-based calculator using the appropriate rate of inflation or real estate appreciation in your plan.
Geo-arbitrage
Relocating to take advantage of the lower costs of a city/country.
Gross Pay
Total amount of money made before taxes and other deductions.
HSA
HSAs are health savings accounts that offer tax-free contributions, tax-free growth, and tax-free withdrawals when used for qualified medical expenses.
Inflation
A rise in the general level of prices of goods and services.
IRA
Individual retirement account that allows you to put money aside for when you retire; you set it up on your own using a bank or broker.
IRMAA
A Medicare surcharge incurred by individuals above a certain income limit.
Long Term Care
Services such as independent living, assisted living, and skilled nursing to meet the medical needs or daily activities for an individual who is older, disabled or chronically ill.
Lump Sum
One way that a pension may be paid, as opposed to monthly.
MAGI
Modified Adjusted Gross Income
Marginal Income Tax
The tax bracket into which the last dollar earned falls.
Medicaid
The US public health insurance program that offers health care coverage to low-income families and individuals who qualify.
Medicare
The US Federal health insurance program that offers health care coverage to people 65 or older, some younger people with disabilities, and other individuals who qualify.
Mega Backdoor Roth Method of utilizing an eligible Employer Plan to increase savings.
Passive Income
Money you earn in a way that requires little to no daily effort to maintain; examples include rental properties, royalties, investment returns, interest, etc.
Present Value
What an investor needs to invest today (i.e., in the present) to have a future value. "Today's dollars." If you need to determine the present value of an expense, you can easily use a financial calculator, Excel or Sheets PV function, or web-based calculator using the appropriate rate of inflation or real estate appreciation in your plan.
QCD
Qualified Charitable Distribution. A charitable giving and tax avoidance strategy available to individuals after age 70.5. A QCD is a distribution that goes directly from an IRA to a qualified charity. QCDs are allowed after you turn 70.5, and allow you to transfer up to $100,000 per individual per year from your IRA to a qualified charity. QCDs are often used to mitigate the tax on RMDs because a QCD may satisfy all or part of the RMD requirement. A QCD is not subject to ordinary federal income taxes – the amount is simply excluded from your taxable income.
Rollover
Method of transferring one retirement account to another. Often used to consolidate workplace accounts after retirement into a "rollover IRA."
Roth Conversion
Strategy for moving your money from a tax-deferred account, such as a 401(k), into a Roth IRA.
Roth Conversion (Ladder)
Strategy for moving your money from a tax-deferred account, such as a 401(k), into a Roth IRA with the intention of withdrawing the converted funds from the Roth IRA after five years.
Roth IRA
An individual retirement account that allows individuals to set aside a certain percentage of their income after taxes have been paid with no tax on investment returns if certain conditions are met.
RMD
Required minimum distributions. The annual amount the IRS requires individuals to withdraw from their qualified retirement plans after age 72.
Rule of 55
Method of accessing qualified plan funds prior to age 59.5. The Planner allows withdrawals prior to age 59.5, and does not apply a penalty.
Rule 72t (SEPP)
Method of accessing qualified plan funds prior to age 59.5. The Planner allows withdrawals prior to age 59.5, and does not apply a penalty.
If your income from all sources does not cover your expenses you will see a Savings Drawdown in your plan. Savings Drawdowns are automatically calculated based on any additional income needed to cover your expenses.
Secure Income
Income from sources such as Social Security, annuities and pensions that you will receive through your longevity age.
Shortfall
Shortfall is a term used on the Insights > Savings > Withdrawals Chart. It indicates a withdrawal from an account to pay expenses modeled in your plan. Shortfalls may not always indicate a net withdrawal from your plan, as the shortfall is often made up later in the year due to our funding process. The best place to view your Net Savings Drawdowns is the Lifetime Income Projection Chart.
Social Security
US federal insurance program that provides benefits to retired people and those who are unemployed or disabled who qualify.
Spousal Benefit
Social Security benefit available to spouses. Under certain circumstances the spousal benefit will increase the lower earning spouse's benefit to 50% of the higher earning spouse's benefit.
Sudden Wealth Event
Unexpected receipt of a substantial amount of money or other assets. Windfall.
Survivor Benefit
Social Security benefit available to survivors under certain conditions.
Step up Basis
Increase in cost basis for certain inherited assets.
Today's Dollars
What an investor needs to invest today (i.e., in the present) to have a future value, also referred to as "today's dollars." If you need to determine the present value of an expense, you can easily use a financial calculator, Excel or Sheets PV function, or web-based calculator using the appropriate rate of inflation or real estate appreciation in your plan.
Traditional IRA
An individual retirement account that allows individuals to set aside a certain percentage of their income before taxes have been paid.
Turnover Rate Internal capital gains incurred by trading.
IRS Form 1040(s) IRS tax return form for individuals.
IRS Form 1099 - Int IRS form that reports annual interest paid.
IRS Form 1099 - R IRS form that reports annual distributions from retirement plans.
IRS Form 1099- Div IRS form that reports annual dividends paid.
IRS Form 5498 IRS form that reports annual contributions made.
IRS Schedule D Capital gain and loss schedule
IRS Schedule C Self Employment income tax schedule.
IRS Schedule E Rental and Royalty income tax schedule.