10 Retirement Terms You Need To Know

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Although you can quit work at any time and call it “retirement,” having enough money to fund your post-work life requires careful planning.

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In addition to general financial planning rules like “paying yourself first” and “saving as much as you can,” retirement savers need to be familiar with additional, more specialized terms and concepts. Here are some of the retirement terms you need to know to help make sure you’re on the right track both before and after your retirement date.

Required Minimum Distribution

For pretax retirement accounts like IRAs or 401(k) plans, account holders must begin taking annual distributions once they reach a certain age. This is known as the required minimum distribution. While RMDs formerly began at age 70 1/2, now you can wait to begin your withdrawals until age 72 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’re entitled to your standard Social Security benefit. For those born in 1960 and later, full retirement age is 67. Although you can opt to draw your benefits as early as age 62, your monthly benefit will be reduced by as much as 30%. If you wait until age 70, however, your benefits will jump by 8% per year you wait.

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Matching Contributions

Many large employers will offer to match at least a portion of what you contribute to your 401(k) plan. These matching contributions are one of the best ways to boost your retirement savings, as they essentially amount to free money. For example, your employer might match 100% of the first 5% of your earnings that you contribute to your account. This can literally double the amount that goes into your 401(k) every year, with no additional cost to you.

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Individual Retirement Account

Many workers don’t have access to an employer-sponsored retirement plan at work, such as a 401(k). In this case, workers may be eligible to contribute to an individual retirement account, or IRA. Contributions may qualify for a tax deduction, and money in the account grows tax-deferred until withdrawn in retirement. Typically, an investor can buy everything from stocks and bonds to mutual funds and exchange-traded funds in an IRA.

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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 pretax contributions, and earnings grow tax-deferred. However, 401(k) plans have much higher contribution limits, and most plans also allow for employer matching contributions. Investments are often limited, however, to a chosen selection of mutual funds.

Saver’s Credit

Depending on your income, the saver’s credit, also known as the retirement savings contribution credit, grants a credit of up to 50% of the amount that you contribute to retirement plans, including 401(k) plans and IRAs. The credit is tiered and vanishes at an income level of over $68,000 for joint filers or $34,000 for single filers.

Estate Planning

Estate planning is something that comes into sharper focus as you near retirement age. Estate planning refers to setting up your assets so that they pass to your heirs according to your wishes. This may involve everything from drafting a will to establishing a trust or employing even more advanced planning techniques that you should discuss with your financial and tax advisors.


Vesting is a fancy term for ownership, and it typically refers to company benefits. Since companies don’t want to grant immediate ownership of benefits only to see employees head out the door, they typically invoke vesting schedules that provide ownership after a period of time. Common vesting schedules are a one-year “cliff” vesting or five-year “gradual” vesting, which typically grants 20% ownership each year.

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Portability refers to the ability to bring employer benefits with you if you leave a firm. For example, if you have a 401(k) balance at a company and you retire, you can roll that balance into an IRA account. Some firms may also allow you to maintain it at the company and still manage it, at least for a period of time. 

Compound Interest

Compound interest may be the single most important concept when it comes to retirement planning. Essentially, the longer you can save and invest, the more time your money has to compound and grow. If you wait to begin saving for retirement at age 50 instead of age 20, for example, you’ll have to contribute a significantly higher amount every month to reach your goals, as compound interest can make even small amounts invested in your 20s grow to large sums by retirement age.

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About the Author

After earning a B.A. in English with a Specialization in Business from UCLA, John Csiszar worked in the financial services industry as a registered representative for 18 years. Along the way, Csiszar earned both Certified Financial Planner and Registered Investment Adviser designations, in addition to being licensed as a life agent, while working for both a major Wall Street wirehouse and for his own investment advisory firm. During his time as an advisor, Csiszar managed over $100 million in client assets while providing individualized investment plans for hundreds of clients.
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