A 401(k) is among the most common types of retirement accounts. An employee agrees to have a percentage of their paycheck sent directly to an investment account to set aside for their future. These funds come out before taxes to reduce the employee’s taxable income. Many employers offer 401(k) plans as part of their benefits portfolio, often matching their employees’ contributions to a certain extent. In 2023, professionals can put up to $22,500 into their 401(k) plan, and individuals over the age of 50 can contribute up to $30,000. Be sure to check the IRS website for the most current information.


This is a retirement plan specifically designated for employees of public schools and colleges, religious organizations, government agencies, and other tax-exempt organizations. They are similar to 401(k)s for private sector employees, and typically have the same caps on annual contributions.


Annuities are financial products that provide a guaranteed stream of income, most often used for retirement. Payment schedules vary based on the different types of annuities available.

Asset Allocation

Asset allocation refers to how investors diversify their investments across various asset classes to strike a balance between risk and return.


Beneficiaries are the people or entities earmarked to benefit from things such as life insurance policies, wills, and trusts after your death.

Catch-Up Contributions

Individuals aged 50 and older are permitted to make catch-up contributions to their retirement plans in an effort to accelerate their savings. The maximum amounts for catch-up contributions vary from plan to plan.

Compound Interest

Compound interest is interest earned on both the initial principal investment and accumulated interest. It allows sums to grow at a faster rate over time—which is good for investments, but bad for debt.

Defined Benefit Plan

This is an employer-sponsored retirement plan where employee benefits are calculated using a formula based on multiple factors, including length of employment and salary history. A defined benefit plan helps the employee to predict a specific benefit upon retirement.

Defined Contribution Plan

A defined contribution (DC) plan is a retirement plan where employees contribute a portion of their paycheck to an account designated for their retirement. Employers also contribute to these accounts. Generally, these plans are tax-deferred and participation is voluntary. Future payouts are not guaranteed with DCs. 401(k)s and 403(b)s are the most common examples of these retirement plans.


This is the practice of spreading investments within a portfolio across various asset classes to reduce risk. These classes may include stocks, bonds, cash, commodities, and real estate.

Dollar-Cost Averaging

In an ideal world, you would be able to buy stocks and other assets when their prices are low and sell them when they’re high. But it’s pretty much impossible to time the market correctly for every trade, which is why some investors consider the concept of dollar-cost averaging and buy assets at specific intervals, which may mitigate the effects of volatility.

Early Retirement

Individuals are eligible to begin receiving Social Security benefits at age 62. However, retiring before the full retirement age of 70 can cut your benefits by as much as 30%. Early retirement requires more extensive financial planning to provide for a longer retirement period.

Employee Contribution Limits

The IRS puts a cap on how much employees can contribute to their retirement accounts every year, and these limits vary based on the plan. These limits can also change from year to year, as the IRS updates tax laws to reflect inflation and other market variables.

Employee-Sponsored Retirement Plan

Employer-sponsored plans like 401(k)s allow employees to automatically save for retirement while benefitting from tax breaks. Because employers contribute to these plans, employees receive the benefits of “free money” toward their future.

Estate Planning

Estate planning is the preparation of tasks to manage an individual’s assets in the event they become incapacitated or pass away. It involves medical directives, funeral and burial arrangements, the bequest of assets to heirs, and the settlement of estate taxes.


A fiduciary is a person or entity legally obligated to act in the best interests of another, particularly regarding financial matters.

Financial Advisor

Financial advisors are professionals who provide financial advice and management to clients of all ages and stages of life. Their services include retirement planning, tax planning, estate planning, and investment management.


Inflation is the rate at which the general level of prices for goods and services rises. As inflation goes up, purchasing power decreases. It’s important to factor in inflation when planning for retirement and to prepare for higher costs for these items and services over time.

Insurance Analysis

How much risk can you assume out of your own pocket? And how much risk should an insurance company carry on your behalf? By conducting an insurance analysis, you can figure out the answers to these questions.


A traditional IRA (individual retirement account) enables you to invest pretax dollars to save for retirement. Taxes are due on IRA funds once they’re distributed during retirement. Contribution limit details can be found here .

Life Expectancy

Life expectancy is the average number of years a person is expected to live. It is critical for estimating how long retirement funds need to last. Your life expectancy depends in part on variables like gender, genetics, marital status, health history, and lifestyle.


Liquidity refers to the ease and efficiency with which you can convert an asset or investment into cash without impacting its market price. Cash is considered the most liquid of all assets when compared to tangible assets like fine art and real estate, which cannot be converted as quickly or easily.

Monte Carlo Analysis

A Monte Carlo analysis is a tool you can use to simulate your financial situation, outline your goals, and figure out the probability that the plan you’ve put together will help you get there. This can give you a better understanding of how much risk you can assume.

Pension Plan

This is a type of retirement plan that requires an employer to contribute to a pool of funds set aside for an employee’s future retirement. Some pensions allow employees to contribute, with employers matching a specific dollar amount or percentage of those contributions.


In this context, a portfolio is a group of financial investments, including cash, bonds, stocks, and commodities. It can also contain other types of assets like art, real estate, and private investments.

Pre-Tax Contributions

Based on the specific retirement plan, employees can either contribute money before or after state and federal taxes are taken out of their paycheck. Pre-tax contributions are taken before, which reduces the employee’s overall gross income and potentially lowers their income taxes, too.

Rate of Return

The rate of return refers to how your investment has performed over a certain period of time. If you put in $100 on Jan. 1, for example, and have $200 the following Jan. 1, that’s a 100 percent rate of return. If that $100 turns into $80 after a year, that’s a minus 20 percent rate of return.

Required Minimum Distribution (RMD)

RMDs are the minimum amount you must take out of your retirement accounts every year. As of 2023, the SECURE 2.0 Act of 2022 raised the age at which you must start taking RMDs to 73 for those who turn 72 after December 31, 2022.

Revocable Trust

A revocable trust, or living trust, is a document that outlines your assets and how you want them handled. They can be updated as needed to add or change beneficiaries and revise the plan for asset distribution. Once the owner of the trust dies, the property and assets are transferred to the beneficiaries.

Risk Tolerance

This is the degree to which an investor is comfortable dealing with some level of loss within their portfolio. It can change over time depending on the individual’s age, financial goals, and retirement needs.


A rollover is the transfer of assets from one retirement plan to another, typically without incurring tax penalties. The benefits of a rollover may include lower fees, faster growth, or more convenient management of retirement savings.

Roth IRA

A Roth IRA is a personal retirement account that allows you to contribute after-tax dollars to grow tax-free and be withdrawn tax-free after the age 59.5, as long as the account has been open for at least five years.

Social Security Optimization

Did you know that you can decide whether to take Social Security early at a discount, at a “normal” retirement age, or even later to increase your payout? By developing a robust retirement plan, you can optimize your approach to Social Security.

Tax Deferral

Tax deferral is a strategy that postpones the payment of taxes on asset growth until a later date, when funds are withdrawn from the account. This allows these earnings and contributions to enjoy 100% compounded growth.


Vesting is a process by which an employee earns the right to receive full benefits from a retirement plan or stock options. It is typically based on years of service and increases over time until the employee becomes fully vested.

Let EP Wealth Help You Make Sense of Retirement

Suffice it to say that retirement planning can be a complicated process. But you don’t have to go it on your own. By partnering with a financial advisor who has helped a variety of people, you can leverage the experience of someone who knows these terms inside and out and can work with you to develop a plan that supports your goals.

For more information on how a financial advisor can help you work toward your goals, schedule a consultation with EP Wealth today. You can also check out our free guide, Plan Ahead for What’s Ahead: 7 Steps to a More Rewarding Retirement


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