Plain-language definitions for every financial term used in your analysis. 53 terms across 8 categories.
A method that runs thousands of randomized scenarios to estimate the probability of different financial outcomes.
Example: The engine runs 10,000 simulations of your retirement, each with different random market returns, to see how often your money lasts.
Why it matters: Instead of a single "best guess," you see the range of what could happen — from great markets to terrible ones.
Also known as: Monte Carlo, MC simulation, simulation
The percentage of simulated scenarios where your portfolio balance stays above zero through your target end age.
Example: A 75% success rate means that in 7,500 out of 10,000 simulated scenarios, your money lasted through retirement.
Why it matters: It gives you a concrete measure of how robust your retirement plan is against unpredictable markets.
Also known as: probability of success
The percentage of your portfolio you can withdraw annually with a high probability of not running out of money.
Example: The classic "4% rule" suggests withdrawing 4% of your portfolio in year one, then adjusting for inflation each year.
Why it matters: Withdrawing too much too fast is the #1 risk in retirement. This helps calibrate your spending.
Also known as: withdrawal rate, 4% rule, SWR
The projected portfolio balance at the end of the simulation period (typically age 95).
Example: If your median terminal wealth is $450,000, half the scenarios ended with more than that and half with less.
Why it matters: Shows whether you might leave a legacy or run tight — helps with estate and gifting decisions.
Also known as: ending balance, terminal portfolio
The years before retirement when you are saving and growing your portfolio through contributions and investment returns.
Example: A 30-year-old contributing $500/month for 30 years is in the accumulation phase until retirement at 60.
Why it matters: The longer this phase, the more time compound growth has to work. Starting early makes an outsized difference.
Also known as: savings phase, pre-retirement
The years during retirement when you withdraw from your portfolio to fund living expenses.
Example: After retiring at 62, you enter the distribution phase — drawing down savings to cover expenses that exceed Social Security and pension income.
Why it matters: Managing withdrawals carefully is critical — you need your money to last 30+ years without a paycheck.
Also known as: drawdown phase, decumulation
The age at which you plan to stop working and begin living primarily from savings and benefits.
Example: Retiring at 62 means 5 years before Medicare eligibility and potentially reduced Social Security benefits.
Why it matters: Every year earlier you retire means one more year of withdrawals and one fewer year of contributions.
The statistically expected remaining lifespan based on current age and sex, used to determine how long your money needs to last.
Example: A 65-year-old woman has an average life expectancy of about 87, but planning to age 95 provides a safety margin.
Why it matters: Underestimating longevity is a major risk — the analysis uses age 95 as a default to provide a buffer.
Also known as: longevity, planning horizon
The gradual increase in the cost of goods and services over time, which erodes purchasing power.
Example: At 3% annual inflation, something that costs $50,000 today will cost about $121,000 in 30 years.
Why it matters: Your retirement spending needs to keep up with inflation. $5,000/month today will feel like much less in 20 years.
Also known as: CPI, cost of living
Your estimated monthly Social Security benefit if you claim at your full retirement age.
Example: If your PIA is $2,500, that is what you would receive monthly by claiming at age 67 (for those born 1960+).
Why it matters: This is the baseline for all Social Security calculations — claiming early reduces it, claiming late increases it.
Also known as: Primary Insurance Amount
The age at which you are entitled to your full Social Security benefit (PIA) without any reduction.
Example: For people born in 1960 or later, FRA is 67. Claiming at 62 reduces your benefit by up to 30%.
Why it matters: Knowing your FRA is essential for deciding when to claim — it is the pivot point for all benefit calculations.
Also known as: Full Retirement Age, full retirement age
The 8% annual increase in Social Security benefits for each year you delay claiming past your FRA, up to age 70.
Example: If your FRA benefit is $2,500/month, waiting until 70 increases it to $3,100/month — a permanent 24% increase.
Why it matters: Delaying is effectively a guaranteed 8% annual return — hard to beat in any investment.
Also known as: DRC, delayed credits
A Social Security benefit equal to up to 50% of your spouse's PIA, available if higher than your own benefit.
Example: If your spouse's PIA is $3,000 and yours is $1,000, you could receive $1,500 as a spousal benefit instead.
Why it matters: Coordinating claiming between spouses can significantly increase total lifetime household benefits.
Also known as: spousal benefits, spouse benefit
A Social Security benefit paid to a surviving spouse, equal to up to 100% of the deceased spouse's benefit.
Example: If your spouse was receiving $3,000/month and passes away, you may receive the full $3,000 as a survivor benefit.
Why it matters: This is why the higher-earning spouse often benefits from delaying — it protects the survivor's income.
Also known as: survivor benefits
An annual increase to Social Security benefits (and some pensions) to keep pace with inflation.
Example: A 2.5% COLA on a $2,000 monthly benefit adds $50/month the following year.
Why it matters: COLA is one of Social Security's biggest advantages — your benefit grows with inflation for life.
Also known as: Cost-of-Living Adjustment, cost of living adjustment
If you claim Social Security before FRA while still working, benefits are temporarily reduced based on earnings above a threshold.
Example: In 2026, if you earn more than ~$22,320 while collecting SS before FRA, $1 is withheld for every $2 over the limit.
Why it matters: Working and claiming early can mean reduced checks — but the withheld amount is restored after FRA.
Also known as: retirement earnings test
Moving money from a traditional (pre-tax) IRA or 401(k) to a Roth (after-tax) account, paying taxes on the converted amount now.
Example: Converting $50,000 from a traditional IRA to a Roth in a low-income year might cost $12,000 in taxes now but save $20,000+ in future taxes.
Why it matters: Strategic conversions in low-income years (between retirement and RMDs) can dramatically reduce lifetime taxes.
Also known as: Roth conversion window, convert to Roth
The minimum amount you must withdraw annually from tax-deferred retirement accounts starting at age 73 (or 75 for those born 1960+).
Example: With $1 million in a traditional IRA at age 73, your first RMD is about $37,700 — and it is taxable income.
Why it matters: RMDs can push you into higher tax brackets. Planning withdrawals before RMDs start can save significant taxes.
Also known as: Required Minimum Distribution, required minimum distribution
A retirement account (traditional IRA, 401(k)) where contributions reduce current taxes but withdrawals in retirement are taxed as income.
Example: A $10,000 contribution to a traditional 401(k) reduces your taxable income by $10,000 this year, but you pay taxes when you withdraw it.
Why it matters: Tax-deferred accounts are powerful if you expect to be in a lower tax bracket in retirement.
Also known as: traditional IRA, traditional 401k, 401(k), IRA, pre-tax
A retirement account (Roth IRA, Roth 401(k)) where contributions are made with after-tax dollars but all future growth and withdrawals are tax-free.
Example: A 28-year-old contributing $6,000/year to a Roth IRA could have $500,000+ tax-free at retirement.
Why it matters: Roth accounts provide tax-free income in retirement and are not subject to RMDs (Roth IRAs).
Also known as: Roth IRA, Roth 401k, Roth 401(k), after-tax
The order in which you draw from different account types (taxable, tax-deferred, Roth) to minimize lifetime taxes.
Example: A common sequence: first use taxable accounts, then tax-deferred up to the standard deduction, then Roth for the rest.
Why it matters: The right withdrawal order can save tens of thousands in taxes over a 30-year retirement.
Also known as: withdrawal order, withdrawal strategy
A fixed dollar amount that reduces your taxable income, available to all taxpayers who don't itemize.
Example: In 2026, the standard deduction for a married couple filing jointly is approximately $30,000.
Why it matters: In retirement, you can withdraw from tax-deferred accounts up to the standard deduction and pay zero federal tax.
The tax rate applied to your next dollar of income — not the rate on all your income.
Example: If you are in the 22% bracket, earning $1,000 more costs $220 in additional tax — but your overall rate is lower.
Why it matters: Roth conversion and withdrawal decisions depend on your marginal rate, not your average rate.
Also known as: tax bracket, marginal rate
Profit from selling an investment for more than you paid. Long-term gains (held >1 year) are taxed at lower rates.
Example: Selling stock bought for $10,000 at $15,000 produces a $5,000 capital gain, taxed at 0%, 15%, or 20% depending on income.
Why it matters: In retirement, managing capital gains carefully can keep you in the 0% long-term rate bracket.
Also known as: LTCG, long-term capital gains, capital gain
How your portfolio is divided among different investment categories like stocks, bonds, and cash.
Example: A 60/40 allocation means 60% in stock index categories and 40% in bond index categories.
Why it matters: Allocation is the single biggest driver of portfolio risk and return — more important than individual investment selection.
Also known as: allocation
Periodically buying and selling to restore your portfolio to its target allocation.
Example: If stocks grow to 70% of your portfolio (target: 60%), you sell some stock categories and buy bonds to get back to 60/40.
Why it matters: Without rebalancing, your portfolio drifts toward higher risk over time as stocks outgrow bonds.
Also known as: rebalance
The annual fee charged by a fund, expressed as a percentage of your invested assets.
Example: A 0.03% expense ratio on $100,000 costs $30/year. A 1.0% ratio costs $1,000/year on the same amount.
Why it matters: Over 30 years, a 1% expense ratio can reduce your portfolio by 25% compared to a 0.03% fund.
Also known as: fund fee, management fee, ER
A fund that tracks a broad market index (like the total U.S. stock market) rather than trying to pick individual winners.
Example: A total stock market index fund holds thousands of stocks, providing instant diversification at very low cost.
Why it matters: Research consistently shows that low-cost index funds outperform most actively managed funds over long periods.
Also known as: index funds, passive fund
Spreading investments across different categories to reduce risk — not putting all eggs in one basket.
Example: Holding both U.S. and international stock categories means a downturn in one market does not sink your entire portfolio.
Why it matters: Diversification is the closest thing to a "free lunch" in investing — it reduces risk without necessarily reducing returns.
Also known as: diversify, diversified
A statistical measure showing where a value falls in a distribution. The 50th percentile (median) is the middle outcome.
Example: If your 25th percentile terminal wealth is $200,000, 75% of simulated scenarios ended with more than that.
Why it matters: Percentiles show the range of possible outcomes — not just the average, but what happens in good and bad scenarios.
Also known as: p5, p25, p50, p75, p95, median
Insurance that covers costs of extended care (nursing home, assisted living, or home care) not covered by Medicare.
Example: A nursing home averages $100,000/year. LTC insurance with a $200/day benefit covers about $73,000 of that.
Why it matters: A multi-year care need can rapidly deplete a retirement portfolio. LTC insurance transfers that risk.
Also known as: long-term care, LTC, long-term care insurance
A policy that pays a death benefit to beneficiaries when the insured person dies.
Example: A $500,000 term life policy for a 40-year-old might cost $40/month and provides income replacement for dependents.
Why it matters: For families with dependents, life insurance prevents a death from becoming a financial catastrophe.
Also known as: term life, whole life
A retirement plan where your employer promises a specific monthly payment for life, based on salary and years of service.
Example: A pension paying $2,000/month for life starting at age 65 is equivalent to having about $480,000 in savings.
Why it matters: Pensions are valuable guaranteed income. The single-life vs. joint-survivor choice is one of the biggest financial decisions retirees face.
Also known as: defined benefit, DB plan, pension plan
A pension payout option that provides a reduced monthly benefit during your life but continues paying your spouse after you die.
Example: Single-life: $2,500/month. Joint & 50% survivor: $2,100/month, with $1,050/month continuing for the surviving spouse.
Why it matters: Choosing single-life is higher income now but leaves your spouse with nothing from that pension if you die first.
Also known as: joint survivor, survivor option, pension option
Federal health insurance for people 65 and older (or with certain disabilities). Part A covers hospital, Part B covers medical.
Example: Medicare Part B premium in 2026 is approximately $185/month, deducted from your Social Security check.
Why it matters: If you retire before 65, you need to bridge the healthcare gap — one of the biggest costs of early retirement.
Also known as: Medicare Part A, Medicare Part B
Cash reserves covering 3-6 months of essential expenses, kept in a liquid, accessible account.
Example: If your monthly essentials total $4,000, an emergency fund of $12,000-$24,000 provides a safety cushion.
Why it matters: Without an emergency fund, unexpected expenses force you to sell investments at potentially bad times or take on debt.
Also known as: rainy day fund, cash reserve
A payoff strategy that targets the highest-interest-rate debt first, saving the most money over time.
Example: Pay minimums on everything, then throw all extra cash at the 24% credit card before the 6% student loan.
Why it matters: Mathematically optimal — saves the most in total interest paid. The alternative (snowball) targets smallest balances for psychological wins.
Also known as: avalanche method
The percentage of your gross monthly income that goes toward debt payments.
Example: If you earn $8,000/month gross and pay $2,400 in debt service (mortgage, car, cards), your DTI is 30%.
Why it matters: High DTI limits your ability to save and makes your financial situation fragile. Under 36% is a common guideline.
Also known as: DTI, debt ratio
The person or entity designated to receive assets from your retirement accounts, life insurance, or estate.
Example: Naming your spouse as primary beneficiary on your IRA ensures they inherit the account directly, bypassing probate.
Why it matters: Outdated beneficiary designations are one of the most common estate planning mistakes — they override your will.
Also known as: beneficiaries
The legal process of validating a will and distributing estate assets, which can be slow, public, and expensive.
Example: Probate in some states costs 3-7% of the estate and takes 6-18 months. Beneficiary designations and trusts avoid it.
Why it matters: Proper planning (beneficiary designations, trusts, TOD accounts) can help your heirs avoid probate entirely.
A trust that pays you a fixed annuity for life, with the remainder going to charity when you die.
Example: Contribute $500,000 of appreciated stock to a CRAT, receive $25,000/year (5%) for life, and get an immediate tax deduction.
Why it matters: CRATs can provide income, reduce taxes, avoid capital gains on appreciated assets, and support causes you care about.
Also known as: Charitable Remainder Annuity Trust, charitable trust
A legal document that authorizes someone to make financial or medical decisions on your behalf if you become incapacitated.
Example: A financial POA lets your designated agent pay bills, manage investments, and file taxes if you cannot.
Why it matters: Without a POA, your family may need costly court proceedings to manage your affairs during a health crisis.
Also known as: POA, financial POA, medical POA
An IRA received from a deceased person. Under the SECURE Act, most non-spouse beneficiaries must withdraw all funds within 10 years.
Example: If you inherit your parent's $500,000 IRA, you must empty it within 10 years — that's $50,000+/year in taxable income.
Why it matters: The 10-year rule can create large tax bills for heirs. Roth conversions by the original owner can eliminate this problem.
Also known as: inherited retirement account
Earning returns on both your original investment and on previously earned returns — growth on growth.
Example: $10,000 growing at 7% annually becomes $76,123 in 30 years without adding a single dollar.
Why it matters: Compound growth is the most powerful force in long-term investing. Starting early matters more than investing more later.
Also known as: compound interest, compounding
Your ability and willingness to endure portfolio declines in exchange for potentially higher long-term returns.
Example: Someone with high risk tolerance might hold 80% stocks. Someone with low tolerance might hold 40% stocks and 60% bonds.
Why it matters: Your allocation should match your risk tolerance — otherwise you may panic-sell during a downturn, locking in losses.
Also known as: risk profile, risk appetite
The total value of everything you own (assets) minus everything you owe (liabilities).
Example: Assets of $800,000 (home, retirement accounts, savings) minus debts of $250,000 (mortgage, loans) = $550,000 net worth.
Why it matters: Net worth is the single best snapshot of your financial health. The analysis tracks how it evolves through retirement.
A triple-tax-advantaged account for medical expenses: contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses are tax-free.
Example: Contributing the 2026 family maximum (~$8,300) to an HSA and investing it can build a substantial medical fund by retirement.
Why it matters: After age 65, HSA withdrawals for any purpose are penalty-free (taxed like a traditional IRA). It is the most tax-efficient account type.
Also known as: Health Savings Account
A tax-advantaged savings plan for education expenses. Earnings grow tax-free when used for qualified education costs.
Example: Contributing $300/month to a 529 for 18 years at 7% growth produces about $130,000 for college.
Why it matters: Many states offer tax deductions for 529 contributions. SECURE 2.0 also allows 529-to-Roth rollovers (up to $35K lifetime).
Also known as: 529, college savings plan
Free money your employer contributes to your retirement account based on your own contributions.
Example: A "100% match on first 3% + 50% match on next 2%" on a $65,000 salary adds $2,600/year to your retirement account.
Why it matters: Not contributing enough to get the full employer match is leaving free money on the table — it is an instant 50-100% return.
Also known as: company match, 401k match
A professional who is legally required to act in your best interest, not just recommend "suitable" products.
Example: A fee-only financial planner who is a fiduciary cannot earn commissions from recommending specific products.
Why it matters: When seeking professional advice, look for a fee-only fiduciary — they have no conflicts of interest from product sales.
Also known as: fiduciary duty
A method to take penalty-free early withdrawals from retirement accounts before age 59½ using substantially equal periodic payments.
Example: A 50-year-old with $500,000 in an IRA can set up SEPP payments of about $15,000-$20,000/year penalty-free.
Why it matters: For early retirees who need to access retirement funds before 59½, SEPP provides a legal bridge — but the rules are strict.
Also known as: Rule 72(t), 72t, SEPP, substantially equal periodic payments
A government subsidy that reduces health insurance premiums for people who buy coverage on the ACA marketplace, based on income.
Example: An early retiree with MAGI of $50,000 might receive $500-$800/month in premium subsidies, reducing a $1,200 plan to $400-$700.
Why it matters: Managing your income (through Roth conversions, withdrawal timing) can maximize ACA subsidies — saving thousands per year before Medicare.
Also known as: marketplace subsidy, premium tax credit, ACA
Your adjusted gross income with certain deductions added back — used to determine eligibility for tax benefits, ACA subsidies, and more.
Example: Your MAGI determines Roth IRA contribution eligibility, ACA subsidy amounts, and Medicare IRMAA surcharges.
Why it matters: Many retirement planning strategies revolve around managing MAGI — keeping it in the right range unlocks major tax benefits.
Also known as: Modified Adjusted Gross Income, adjusted gross income, AGI
This glossary is for educational and informational purposes only. It does not constitute investment advice, financial planning advice, or a recommendation to buy or sell any security.