10 retirement terms you need to know

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Although you can quit your job at any time and call it “retirement,” having enough money to support your after-work life takes careful planning. In addition to general financial planning rules such as “pay yourself first” and “save as much as you can,” savers need to be familiar with other, more specific terms and concepts. Here are some of the retirement terms you need to know to ensure you’re on the right track both before and after your retirement date.

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Required minimum distribution

For pre-tax retirement accounts like IRAs or 401(k) plans, account holders must begin making annual distributions once they reach a certain age. This is called the minimum required distribution. While RMDs used to start at age 70 1/2, you can now wait until age 72 to start your payouts, as long as you reached age 70 1/2 in 2020 or later.

Full retirement age

Full retirement age refers to the age at which you are entitled to your standard Social Security benefit. For those born in 1960 and younger, the full retirement age is 67. Although you can draw your pension at the age of 62, your monthly pension will be reduced by up to 30%. However, if you wait until age 70, your benefits increase by 8% for each year you wait.

Matching posts

Many large employers offer to match at least a portion of your contributions to your 401(k) plan. These matching contributions are one of the best ways to top up your retirement savings because they essentially represent free money. For example, your employer could cover 100% of the first 5% of your income that you deposit into your account. This can literally double the amount that goes into your 401(k) each year at no additional cost to you.

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Individual retirement account

Many workers do not have access to an employer-sponsored retirement plan at work, such as a pension plan. B. 401(k). In this case, employees may be eligible to contribute to an individual retirement account or IRA. Contributions may be eligible for a tax deduction, and the money in the account will accrue tax-deferred until withdrawn in retirement. Typically, an investor in an IRA can buy anything from stocks and bonds to mutual funds and exchange-traded funds.

401(k) plan

If you work for a larger employer, you likely have access to a 401(k) plan. Like an IRA, a 401(k) plan allows for pre-tax contributions, and profits grow tax-deferred. However, 401(k) plans have much higher contribution limits, and most plans also allow employer contributions. However, investments are often limited to a select selection of investment funds.

savings loan

Depending on your income, the savings loan, also known as a retirement savings loan, provides credit for up to 50% of the amount you pay into retirement plans, including 401(k) plans and IRAs. The credit is graduated and disappears at income levels above $68,000 for joint applicants or $34,000 for individual applicants.

estate planning

Estate planning gets closer as you approach retirement age. Estate planning means arranging your assets in such a way that they pass to your heirs according to your wishes. This can include anything from making a will to forming a trust to using even more advanced planning techniques which you should discuss with your financial and tax advisors.


Vesting is a fancy term for ownership and typically refers to corporate benefits. Because companies don’t want to grant immediate ownership of benefits just to watch employees walk out the door, they typically invoke vesting schedules, which grant ownership after a certain amount of time. Common vesting schedules are a one-year “cliff” vesting or a five-year “gradual” vesting, typically granting 20% ​​ownership each year.


Portability refers to the ability to take benefits with you when you leave a company. For example, if you have 401(k) balances with a company and you are retiring, you can transfer those balances to an IRA account. Some companies may also allow you to keep it in-house and continue to manage it, at least for a period of time.

compound interest

Compound interest can be the most important concept when it comes to retirement savings. The longer you can save and invest, the more time your money has to earn interest and grow. For example, if you wait until you start saving for retirement on 50 instead of 20, you’ll need to put in a significantly larger amount each month to reach your goals because compound interest will add up to even small amounts invested in your 20s can leave large sums of money until retirement age.

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About the author

After earning a BA in English with a concentration in Business from UCLA, John Csiszar spent 18 years as a registered agent in the financial services industry. Along the way, Csiszar earned both the Certified Financial Planner and Registered Investment Adviser designations in addition to his life agent certification while working for both a major Wall Street wirehouse and his own investment advisory firm. During his tenure as an advisor, Csiszar managed over $100 million in client assets and created customized investment plans for hundreds of clients.


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