retireclarity
retireclarityGlossary

Plain-language definitions for retirement planning terms. No jargon, no fluff.

A

ACA (Affordable Care Act)
Federal law providing health insurance subsidies for those earning up to 400% of the Federal Poverty Level. Early retirees often manage income carefully to stay below this threshold and preserve subsidies.
See:ACA Cliff articleACA Settings
Asset Allocation
The mix of stocks, bonds, and other investments in your portfolio. A common retirement starting point is 60% stocks / 40% bonds, though optimal allocation depends on your timeline and risk tolerance.
See:Bond Optimizer

B

Bond Allocation
The percentage of your portfolio invested in bonds. Higher bond allocation typically reduces volatility but may limit long-term growth. Finding the right balance depends on your withdrawal needs and time horizon.
See:Bond Optimizer
Bracket Filling
A Roth conversion strategy where you convert just enough traditional IRA money each year to "fill up" a lower tax bracket without spilling into a higher one. This approach spreads tax liability across multiple years at favorable rates.
See:Roth Conversions article

C

Capital Gains
Profit from selling an investment for more than you paid. Long-term capital gains (assets held over one year) are taxed at preferential rates of 0%, 15%, or 20% depending on income.
See:Capital Gains
Cost Basis
The original value of an investment for tax purposes, usually what you paid for it. When you sell, you pay taxes only on gains above your cost basis. In a brokerage account, this determines how much of each withdrawal is taxable.

D

Discretionary Expenses
Spending that can be reduced during financial stress — travel, dining out, entertainment. Distinguishing discretionary from essential expenses helps model realistic retirement behavior during market downturns.
See:Expenses

E

Effective Tax Rate
Your total tax divided by total income — the average rate you actually pay. Different from marginal rate, which is what you pay on the next dollar earned. A retiree might have a 22% marginal rate but only a 12% effective rate.
Essential Expenses
Fixed costs that cannot easily be reduced — housing, utilities, food, insurance, healthcare. These form the baseline of your retirement spending needs.

F

Federal Poverty Level (FPL)
Income thresholds set annually by the government, used to determine eligibility for ACA subsidies and other programs. For 2025, 400% FPL is approximately $60,240 for an individual and $81,760 for a couple.
FICA
Federal Insurance Contributions Act taxes that fund Social Security and Medicare. Employees pay 7.65% (6.2% Social Security + 1.45% Medicare). These taxes apply to wages, not retirement account withdrawals.
Full Retirement Age (FRA)
The age at which you can claim 100% of your Social Security benefit. For those born 1960 or later, FRA is 67. Claiming before FRA permanently reduces benefits; delaying past FRA increases them by 8% per year until 70.
See:Social Security Timing

G

Guyton-Klinger Rules
A set of guardrails for adjusting retirement withdrawals based on portfolio performance. If your portfolio drops significantly, you reduce spending; if it grows substantially, you can spend more. This adaptive approach can improve portfolio survival rates.

I

Inflation
The rate at which prices increase over time, eroding purchasing power. A 3% inflation rate means $100 today buys what $103 will buy next year. Retirement projections must account for inflation to remain meaningful.
IRMAA (Income-Related Monthly Adjustment Amount)
A surcharge added to Medicare Part B and D premiums for higher-income beneficiaries. Uses income from two years prior (2025 premiums based on 2023 income). Thresholds start at $103,000 (single) / $206,000 (married).
See:IRMAA Surcharges
IRA (Individual Retirement Account)
A tax-advantaged retirement savings account. Traditional IRAs offer tax-deferred growth (you pay taxes on withdrawals). Roth IRAs offer tax-free growth (you pay taxes upfront, withdrawals are tax-free).

L

Life Expectancy
The age to which you plan for your money to last. Financial planners often recommend planning to age 90-95 to avoid outliving your savings. Using a longer life expectancy is conservative but prudent.
Longevity Risk
The risk of outliving your savings. This is the primary risk Monte Carlo simulations help you assess — not dying early, but living longer than your money lasts.
See:Monte Carlo article

M

Marginal Tax Rate
The tax rate on your next dollar of income — the highest bracket your income reaches. Different from effective rate, which averages across all brackets. Knowing your marginal rate helps optimize Roth conversions.
MAGI (Modified Adjusted Gross Income)
Your adjusted gross income with certain deductions added back. Used to determine eligibility for ACA subsidies, Roth IRA contributions, and IRMAA thresholds. For most retirees, MAGI closely matches AGI.
Monte Carlo Simulation
A method of testing your retirement plan against thousands of possible market scenarios using historical returns. Rather than assuming a fixed return, it shows the probability your plan survives real-world volatility.
See:Why Average Returns MisleadChance of Success

N

NIIT (Net Investment Income Tax)
A 3.8% surtax on investment income (dividends, capital gains, interest) for those with MAGI above $200,000 (single) or $250,000 (married). Roth conversions can push income above these thresholds.
See:NIIT Details
Nominal Dollars
Future dollar amounts without adjusting for inflation. $100,000 in 20 years is $100,000 nominal — but it won't buy as much as $100,000 today. Compare with "today's dollars" which inflation-adjusts for apples-to-apples comparison.

Q

QCD (Qualified Charitable Distribution)
A direct transfer from an IRA to a charity that counts toward your RMD but isn't included in taxable income. Available starting at age 70½, up to $105,000 per year. A powerful tax strategy for charitably-inclined retirees.

R

RMD (Required Minimum Distribution)
Mandatory annual withdrawals from traditional IRAs and 401(k)s starting at age 73 (75 if born after 1959). The IRS requires you to withdraw a minimum amount based on your account balance and life expectancy factor.
See:RMD Optimization articleRMD Calculations
Roth Conversion
Moving money from a traditional IRA to a Roth IRA. You pay income tax on the converted amount now, but future growth and withdrawals are tax-free. Strategic conversions during low-income years can reduce lifetime taxes.
See:Roth Conversions articleRoth Planner
Roth IRA
A retirement account funded with after-tax dollars. Contributions are not tax-deductible, but qualified withdrawals (after age 59½ and 5-year holding period) are completely tax-free, including all growth.

S

Safe Withdrawal Rate
The percentage of your portfolio you can withdraw annually with high confidence of not running out. The famous "4% rule" is a starting point, but actual safe rates depend on market conditions, time horizon, and flexibility.
Sequence of Returns Risk
The risk that poor market returns early in retirement permanently damage your portfolio. A retiree who experiences a crash in years 1-3 may never recover, even if later returns are strong. This is why Monte Carlo simulation matters more than average returns.
See:Monte Carlo article
Social Security
Federal retirement benefits funded by payroll taxes. You can claim reduced benefits starting at 62, full benefits at Full Retirement Age (67 for most), or increased benefits (8% more per year) by waiting until 70.
See:When to Claim Social Security
Standard Deduction
The amount of income you can earn tax-free before any tax applies. For 2025, it's approximately $15,000 (single) or $30,000 (married filing jointly), with an extra ~$1,950 per person if 65 or older.
Success Rate
In Monte Carlo simulation, the percentage of scenarios where your money lasts through your target age. An 85% success rate means 850 of 1,000 simulated retirements didn't run out of money. Most planners target 80-95%.
See:Chance of Success

T

Tax-Deferred Account
Accounts like traditional IRAs and 401(k)s where you get a tax deduction on contributions, growth is tax-free, but withdrawals are taxed as ordinary income. RMDs force withdrawals starting at age 73-75.
Today's Dollars
Future amounts adjusted for inflation to show their equivalent purchasing power today. If you'll have $200,000 in 20 years and inflation averages 3%, that's worth about $110,000 in today's dollars. More intuitive for planning.
Traditional IRA
A retirement account where contributions may be tax-deductible and growth is tax-deferred. You pay ordinary income tax on withdrawals. Subject to RMDs starting at age 73-75.

W

Withdrawal Rate
The percentage of your portfolio you withdraw each year. A $40,000 annual withdrawal from a $1,000,000 portfolio is a 4% withdrawal rate. Lower rates generally mean higher success probability.
Withdrawal Sequence
The order in which you tap different accounts — taxable, tax-deferred, or Roth. Optimal sequencing can significantly reduce lifetime taxes. Generally: taxable first, then tax-deferred, then Roth — but exceptions abound.
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