Plain-English definitions of the retirement and savings terms you'll encounter on this site — and in your financial life.
The real rate of return earned in a year, including the effect of compounding interest. Higher than the nominal interest rate. Used for savings accounts and CDs.
How you divide your investments among stocks, bonds, cash, and other asset classes. A 30-year-old might hold 80% stocks / 20% bonds; a near-retiree might hold 50/50.
A loan you make to a government or company. They pay you interest over time and return your principal at maturity. Generally lower risk and lower return than stocks.
Profit from selling an investment for more than you paid. Short-term (held under 1 year) is taxed as ordinary income; long-term (over 1 year) gets preferential rates.
Interest earned on both your original money and the interest it has already earned. Over decades, this is the single most powerful force in investing. Try the calculator →
Spreading your investments across different assets, sectors, and countries so that no single failure wipes you out. "Don't put all your eggs in one basket."
Investing a fixed amount regularly regardless of market conditions. You buy more shares when prices are low and fewer when high, smoothing out your average cost.
Cash set aside for unexpected expenses — job loss, medical bills, car repairs. Typically 3–6 months of essential living expenses, kept in a high-yield savings account. Calculate yours →
The annual fee a mutual fund or ETF charges, as a percentage of your investment. A 0.05% index fund vs. a 1.0% actively managed fund can cost you hundreds of thousands over a career.
A movement focused on saving 50%+ of your income to retire decades before the traditional age. The math: save 25× your annual spending, then withdraw 4% per year. See when you can FIRE →
An employer-sponsored retirement account. Contributions are pre-tax, grow tax-deferred, and you pay tax when you withdraw in retirement. Many employers match a portion of your contribution. Calculate yours →
A savings account at an online bank that pays significantly more interest than a traditional brick-and-mortar bank. FDIC-insured. The best place for your emergency fund.
A mutual fund or ETF that simply buys all the stocks in a market index (like the S&P 500). Low cost, broad diversification, and beats most actively managed funds over long periods.
The rate at which prices rise and purchasing power falls. At 3% annually, prices double roughly every 24 years. Cash loses value to inflation every year. See the impact →
A personal retirement account you open at a brokerage, separate from your employer plan. Comes in Traditional (tax deduction now) and Roth (tax-free withdrawals). Calculate growth →
Everything you own minus everything you owe. The single best measure of your financial progress. Calculate yours →
The minimum amount you must withdraw annually from Traditional 401(k)s and IRAs starting at age 73. Roth IRAs have no RMDs during the owner's lifetime.
Contributions are after-tax, but all withdrawals in retirement are 100% tax-free. Best if you expect your tax rate to be higher in the future. Compare →
A retirement eligibility rule: you qualify for full pension benefits when your age plus your years of service equals 75. Common in law enforcement and some union plans. Find your date →
A retirement eligibility rule: you qualify for full pension benefits when your age plus your years of service equals 80. Common in government, teacher, and firefighter pension plans. Find your date →
The US government's retirement benefit program, funded by payroll taxes. You can claim as early as 62, but your benefit is permanently reduced. Wait until 70 for a 76% higher monthly check. Estimate yours →
An index of 500 large US companies. Often used as a benchmark for the entire US stock market. Average annual return: about 10% before inflation.
Contributions are pre-tax (lowering this year's tax bill), but withdrawals in retirement are taxed as ordinary income. Best if you expect a lower tax rate in retirement.
The classic withdrawal strategy: withdraw 4% of your savings in the first year of retirement, then adjust for inflation. Designed to make your money last 30+ years. See when you can retire →