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Personal Finance Terms to Know Before Retirement

Personal Finance Terms to Know Before Retirement

March 01, 2021

As you near retirement, it is common to become more concerned with your savings and investments. Unfortunately, unless you are a finance professional, some of the terminology that is often thrown around can be quite confusing. Coupled with the ever-changing stock market, fluctuations in interest rates, and unlimited investment options, and the thought of growing your nest egg can be daunting.

At The JL Smith Group, we want you to feel comfortable with how your money is being invested. That is why we have taken the time to put together a small guide of the most common terms you might hear during a conversation with one of our advisors. To make sure you understand and are comfortable with your retirement plan, give one of our advisors a call at (440) 934-9181 or schedule a complimentary consultation.

Retirement Glossary


The 401(k) is an employer-sponsored retirement savings plan that is available to employees at most companies. The contributions for the savings plan are taken from your paycheck, tax-deferred, and invested. Once it is time to take funds from the 401(k), they will be taxed as they are removed.

Adjusted Gross Income

The adjusted gross income is calculated by taking your gross income and subtracting specific adjustments, such as student loan interest, retirement contributions, and alimony payments.


The annuity contract will have you make an initial lump sum deposit or series of payments, and in return, you will receive a steady monthly income during retirement.


An asset can be any item that has financial value or expected financial value in the future that a person or entity owns.

Asset Allocation

The process of dividing the money in your investment portfolio to reduce risk and potentially increase your returns. Bucket planning is an example of asset allocation that involves segmenting money into three different buckets based on your investment time horizon, volatility tolerance, and income needs.


Bonds are a less risky investment option and are essentially a loan from the investor to the bond issuer. The issuer guarantees to pay back the invested money plus interest at specified intervals of time.

Bucket Plan Certified (BPC)

Bucket Plan Certified (BPC) is a FINRA-recognized professional designation that acknowledges a financial advisor has elevated their skillset to that of a holistic financial advisor delivering a Best Interest Planning Process and a customized financial plan in the form of a Bucket Plan®.

Capital Gain / Capital Loss

For investors, a capital gain is the profit resulting from the selling of an asset after it has grown in value. Capital loss, on the other hand, is the loss an investor experiences when selling an asset that has lost financial value.

Certified Financial Planner (CFP)

Financial professionals who receive their certification through the Certified Financial Planner Board of Standards will be given the Certified Financial Planner (CFP) designation. With this designation, the planner will be a fiduciary for their clients and has proven their ability to handle concepts, such as insurance, taxes, retirement investing, and estate planning.

Chartered Financial Analyst (CFA)

Licensed financial professionals who pass the CFA Institute exams for financial analysts will receive the Chartered Financial Analyst designation.

Commission-Based Financial Planner

Financial planners who are commission based will receive money based on the individual financial products they sell to their clients.

Defined Benefit Plan

The defined benefit plan is backed mostly by employer contributions and provides you with a guaranteed amount when you retire. Employees also have the option to make additional contributions to the plan if they so choose.

Defined Contribution Plan

Unlike a defined benefit plan, a defined contribution plan is a retirement savings plan that requires a set amount of contributions and doesn’t provide a guaranteed benefit. Instead, the plan is dependent on asset returns.


Depreciation refers to the decline in the value of an asset over time. This is especially important for investors who purchase assets, such as homes or property, to be aware of.

Discretionary Income

The money you have left over after taxes, health insurance, mortgage or rent, and all other living expenses is considered your discretionary income.


Equity is the amount of ownership you have in an asset after you have subtracted any debt you owe on the asset.

Estate Planning

Estate planning provides for the distribution of your estate after your passing and can include establishing a will, asset distribution, and minimizing estate taxes.


A fiduciary is a financial professional who is legally obligated to act in their client’s best interest when recommending investments and investment strategies.

Generation-Skipping Trust

The creation of a generation-skipping trust can help avoid hefty taxes, if you want to leave your estate to a grandchild or family member further down the family tree.

Gross Income

The gross income can be calculated by adding up the sum of all the income you earn from wages and other means.

Index Fund

An index fund provides investors with a product that consists of a collection of stocks or bonds designed to capture the returns of a specific sector in the stock market. Investment costs and fees tend to be lower with this option since there is no active management.


An IRA is a retirement savings account that offers certain tax benefits, such as tax deductions, tax-deferred or tax-free growth on earnings, that other options do not offer.

Lifetime Gift Tax Exemption

The lifetime gift tax exemption is the amount of money that you are able to give to a person throughout your lifetime without incurring any gift taxes.


Liquidity can be defined as how quickly and easily you are able to pull cash from an asset.

Living Will

A living Will is defined as a written legal document that will define a person’s decision about their medical treatment if they are unable to express their own wishes. Often, decisions, such as do not resuscitate orders, advance directives, and life-saving measures, are all laid out in the living Will.


Medicaid was created by the federal government as a way to provide low-income adults, pregnant women, and disabled individuals with assistance in paying healthcare costs.


Often utilized by the senior population, Medicare is a federal health insurance program that covers healthcare costs for individuals over the age of 65 and those with certain disabilities.

Mutual Fund

Mutual funds provide investors with a mix of stocks, bonds, and other securities that are managed by a group of fellow investors. The portfolio manager uses the money in these mutual funds to buy and sell securities based on the objective of the fund.

Net Income

The net income is your total income after all your deductions are taken out.


Usually sponsored by an employer, a pension guarantees the employee with a secure income for life after they retire.

Post-Tax Contribution

Post-tax contributions or after-tax contributions are payments made to a retirement or investment account using money that has already been taxed.

Pre-Tax Contribution

A pre-tax contribution is a payment that has been made with money that has not been taxed.


Rebalancing your portfolio risk can be achieved by periodically buying and selling different assets, such as stocks, bonds, and other securities.

Registered Investment Advisor (RIA)

A person or entity that is approved by the SEC to give financial advice or manage clients’ portfolios is considered a registered investment advisor. These advisors are also fiduciaries.

Required Minimum Distribution

Those with a traditional IRA will need to begin taking money out of the investment account by April 1 of the year after you turn 70 ½. The amount of the required minimum distribution is then determined by your age and life expectancy.

Reverse Mortgage

The reverse mortgage loan option is designed for homeowners who are over the age of 62. The advantage of this type of loan is that it allows the borrower to have access to their home equity without selling the home.

Risk Tolerance

An investor’s risk tolerance is the measure of how much market fluctuation they are comfortable with taking on in their investment portfolio.

Rollover IRA

Rollover IRAs often occur when you change jobs and decide to transfer assets from one tax-deferred retirement plan to another.

Roth 401(k)

The Roth 401(k) retirement savings plan is sponsored by the employer and lets employees have the option of setting aside taxed money from their paycheck so that it can grow tax-free in their investment account.

Roth IRA

The advantage of the Roth IRA is that contributions are made with after-tax dollars, meaning investment growth within the account is not taxed and withdrawals are tax free after the age of 59 ½.


The simplified employee pension plan IRA (SEP-IRA) is similar to a normal IRA but is often used for self-employed individuals and their employees.

Social Security

Social Security is a government-run retirement program that is funded by payroll taxes charged to both employers and employees.


A stock is an investment that gives you partial ownership of a company, often known as a share of the company.

Supplemental Security Income

Supplemental Security Income is provided to people over the age of 65 and who have little or no income, so they can buy essentials like food, clothing, and shelter.

Target Date Fund

A target-date fund often consists of a diversified investment mix of equities, bonds, and cash. The fund manager will shift the investment lineup over time to make the investment more conservative, which, in turn, makes it appealing to investors with a low-risk tolerance.


Certain types of accounts are considered tax-deferred when earnings on the money invested are not subject to taxation until withdrawal.

Time Horizon

Time horizon is referred to as the length of time an investor plans to keep an asset before selling. Time horizons are largely dictated by your investment goals, such as saving for retirement or saving for a down payment on a house.


Trusts are financial instruments that allow a designated trustee to hold or manage assets for a beneficiary.


Many companies offer a 401(k) match but won’t let you take the money they contribute to your retirement plan unless you are vested in the company and retirement plan. The criteria for being vested varies by company, as some require you to be employed for several years, while others will let you take a percentage of the funds based on your tenure.


For investors, the volatility, or how quickly and significantly the price of a stock changes over time, can determine the risk of an investment.


Creating a Will is a great way to ensure that the specifics of your final wishes are carried out the way you intend them to be after you pass away. Many people often designate who will manage their estate, act as legal guardian of any children, or receive their assets once they pass.