Retirement Glossary

Feel like the small print on your retirement plan or advice from your financial advisor is a foreign language? Our glossary makes it easy to decipher what some of the most common terms you may come across mean for you and your business.


401(k) Retirement Plans

An employer-sponsored retirement plan that allows employees to add pre-taxed income to a retirement savings account. The funds will be taxed, however, once the employee makes a withdrawal from the account. Oftentimes, employers will also make contributions to the employee’s 401(k). 401(k)s are portable, so when an employee moves jobs their retirement account will go with them.



A retirement savings option in which an individual pays money into an account administered by an insurance company in exchange for a guaranteed payment amount during retirement. In general, the concept of an annuity is similar to life insurance, except that an individual is able to receive payment while still alive. Annuities can grow tax-deferred, meaning investors pay no taxes on the earnings until they receive payments or make withdrawals.


Compound interest

The addition of interest to the principal sum of your retirement savings, or in other words, interest on interest. Compound interest rates grow faster than simple interest rates because they include all of the accumulated interest on your investments, allowing you to grow your wealth over time.


Defined benefit plan

A type of employer-sponsored retirement plan in which the employer guarantees a fixed payment amount each year of retirement, typically based on the employee’s salary and length of time in the position. Pensions are the most common type of defined benefit plans, and are attractive to employees because retirement benefits are guaranteed and employers generally bear all the risk. However, use of these plans has declined significantly with the rise of new retirement options.

Defined contribution plan

A type of retirement plan based on tax-deferred annual contributions to an investment account. Unlike with a defined benefit plan, the employee or contributor bears investment risk. A defined contribution plan can be employer-sponsored (also known as qualified or group trust plans) like a 401(k), or individual like an IRA.


Employer match/matching contribution

The amount, usually a percentage, that an employer contributes to a retirement plan on behalf of an employee. 


The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established retirement plans and establishes protections for consumers, including standards about disclosing plan information and rules regarding fiduciary responsibilities for the plans.



Anyone who provides financial advice who is ethically obligated to do so in your best interest.


High-risk/low-risk investment portfolio

Your investment portfolio is tailored to your specific needs, High-risk portfolios tend to be looking for large and fast pay-out. This could mean investing start-ups, hedge funds or crypto currency while low-risk portfolios are more likely to succeed but at a slower rate such as treasury market accounts and lending clubs.


Individual Retirement Arrangements (IRA)

Accounts set up at a financial institution that allow an individual to save for retirement with tax-free growth or on a tax-deferred basis. There are two types of IRAs: Roth and Traditional.


Inflation refers to a general increase in prices and a decrease in the purchasing value of money. Inflation has a greater impact once you are retired and can't adjust your savings to accommodate the rising costs.


Mutual fund

An investment program funded by shareholders that trades in diversified holdings and is professionally managed.


Pension plan

A type of defined contribution plan in which you receive a set dollar amount upon retirement, typically based on your last few years of earnings.

Portfolio/Asset allocation

By dividing your assets into categories of investment (ie. stocks, bonds, cash, etc.) you can reduce the risks that are traditionally associated with investing.

  • Stocks/Equities: A type of investment, which allows you to buy shares in a company, allowing you to profit from their successes, but also puts you at risk of losing money if the company fails. 
  • Bonds: A fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental).Many corporate and government bonds are publicly traded; others are traded only over-the-counter (OTC) or privately between the borrower and lender. (Investopedia)
  • Cash-based assets: Physical money that an individual has access to through a savings account or checking account. 


A type of employer-sponsored defined contribution plan that allows an employer to make contributions to an employee’s account from a company’s annual profits, although an employer is not required to make contributions in any given year.


Retirement income

The amount of income you will receive from qualified retirement plans, or the amount that you think you need annually to live on.


The process of moving one retirement account to another. Usually account rollovers need to be handled in a certain way to avoid taxes and/or penalties.


A type of individual retirement account in which your contributions are taxed, but your withdrawals are tax-free.


SEP Plan

A Simplified Employee Pension (SEP) plan provides business owners with a simplified method to contribute toward their employees’ retirement, as well as their own retirement savings.


SIMPLE stands for Savings Incentive Match Plan for Employees. Perhaps the best way to describe the SIMPLE IRA plan is as the little brother of the more robust but more costly 401(k) plan. Much like the traditional 401(k) plan, the SIMPLE IRA Plan allows for both employer contributions as well as employee salary deferral contributions.

Social Security

A national benefit program funded by tax dollars to ensure economic security for those who can no longer work because of their age or a disability. Those who qualify for Social Security benefits receive monthly stipends based on their reported income.

Solo 401k

A version of a 401(k) available to solo-entrepreneurs that allows you to contribute to the plan using both your personal and business income, without subjecting your company to the requirements of ERISA. This plan is only available to small business owners with no employees other than themselves and their spouse.


Tax-deferred contributions

Allows you to contribute to retirement savings without paying income taxes on the funds used to contribute to your retirement investment account. For example, contributions to traditional IRAs are made from current income before you have paid income tax, reducing your current taxable income.

Tax-deferred growth

Refers to investment growth that is not subject to taxes immediately, but is taxed at a later date when you withdrawal or use funds.

Traditional IRA

A type of individual retirement account in which your contributions are tax-free, and you are taxed on withdrawals.

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