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Retirement Planning Lingo — 401k’s, Pensions, & Other Terms To Know

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Retirement Planning Lingo

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Are you approaching that golden age of retirement? If so, you’re likely starting to get a lot of things in the mail or in the office that are related to your retirement that include jargon you may or may not be familiar with.

You’re also likely doing a lot of retirement planning as you get ready to leave the workforce, thinking about things like when to take the leap and how you budget on a fixed income. Having a resource that helps remind you what the lingo you’ll see in the mailers and notices from your employer, the government and many other sources, can be incredibly helpful. With that in mind, here are the most common retirement-related terms and what they mean for you.


A 401K is the employer-sponsored retirement savings plan you’ve probably been contributing to throughout your career. Contributions are taken from the employee’s paycheck and invested into the savings plan. All contributions made to a 401K plan are tax-deferred when they’re made — funds will be taxed when they are taken out of the account. It’s a good idea to plan for the taxes that will affect your 401K as you budget for life after retirement.

Area Agency on Aging (AAA)

The Area Agency on Aging (AAA) is a membership-based organization that helps seniors with everything that comes with aging. The group started in 1973 under the Older Americans Act (OAA) to help Americans who are 60+ live quality lives. You can learn more about AAA, as well as find your local chapter, by visiting their website,

Association for the Advancement of Retired Persons (AARP)

The Association for the Advancement of Retired Persons (AARP) is a non-profit organization that provides information, services, discounts and insurance for people older than 50 in America. According to their website, they currently help more than 38 million Americans. You can find information about how to join, as well as details on your state and/or city AARP, by visiting their website,


An annuity can provide a steady monthly income during retirement. In order to receive an annuity, you work out a contract with a life insurance company where you make an initial lump sum deposit or series of payments. Whereas life insurance provides a benefit after death, annuities provide benefits for the living insured. (Note: See Immediate Annuity definition below for more details.)

Defined Benefit Plan

A defined benefit plan can provide you with a lot of comfort, not only because the employer makes most contributions, but because you are guaranteed a given amount when you retire. You may have heard this called a pension, which is increasingly more rare, and benefits are not dependent on asset returns. Employees may make additional contributions to this plan if they feel so compelled. (Note: There is an excise tax placed on this plan if the minimum contribution is not met or the maximum contribution is exceeded.) The plan can be offered at any size of business, but it is often one of the more costly retirement plans for employers.

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    Defined Contribution Plan

    A defined contribution plan is a retirement savings plan that requires a set amount of contributions and does not guarantee a specific benefit because it is dependent on asset returns. This includes company-sponsored, employee-paid 401K plans. These kinds of retirement plans are now typically more popular than defined benefit plans, as the majority of money is coming from the employee.


    An estate is simply a legal term meaning your net worth at the time of your passing. Basically, it’s the combination of all your assets (investments, savings, possessions of any kind, real estate, etc.) minus your liabilities (debts and loans).

    Estate Planning

    Estate planning provides for the distribution of your estate after you pass away. Estate planning can include establishing a will (see will and living will definitions below), figuring out who will get your assets, who will use your assets to cover your liabilities, setting up trusts, minimizing estate taxes and, in some cases, even establishing medical care decisions so they’re laid out ahead of time.

    Generation-Skipping Trust

    In most cases, a person leaves their assets/estate to their surviving spouse and/or their children without any taxation concerns. However, if they opt to “skip a generation” and leave their estate to a grandchild, or someone even further down the family tree, their heirs could face a hefty tax, which is placed on any value exceeding the generation-skipping transfer tax exemption amount ($5.45 million in 2016). To help avoid this, you can can create a legal document known as a generation-skipping trust.

    Gift-Tax Exclusion

    A gift -ax exclusion is the amount of money you can give to an individual each year without them getting hit with taxes for the gift. Current tax law allows you to gift up to $14,000 tax-free each year to any individual (such as a child or grandchild). You can gift up to this limit to as many people as you like as long as each individual does not receive an amount above the limit.

    Home Equity Line of Credit

    A home equity line of credit is an open-ended loan that is backed by the part of a home’s value that the borrower owns outright. This type of loan is used much like a credit card. Home equity lines of credit can be effective ways to borrow large sums of money with a relatively low interest rate. (If you’re considering doing this, it’s important to comparison shop home equity loan rates, which you can do here.) These types of loans should be used with caution. If a borrower is unable to pay back the loan for some reason (loss of job, illness, etc.) they risk losing the home they used as collateral, which is certainly not something you want to do when you’re on the verge of retiring.

    Immediate Annuity

    Immediate annuities start providing regular tax-deferred payments, guaranteed to last for life or another defined period of time, after you provide a lump-sum investment. Immediate annuities are usually considered a good way to ensure retirement income for the rest of your life.

    Individual Retirement Account (IRA)

    An IRA is a type of savings account that offers tax benefits for setting aside money for retirement. There are two main types of IRAs: A traditional IRA is tax-deferred, whereas a Roth IRA is contributed to with after-tax dollars. There are maximum amounts you can contribute to these savings plans. For example, if you are younger than 50, the maximum you could contribute in 2016 was $5,500. The limit was $6,500 for those 50 and older.

    Lifetime Gift-Tax Exemption Limit

    Your lifetime gift-tax exemption is the amount of money you can give to a person over your entire lifetime that will be free from gift taxes. The lifetime gift tax exemption amount was raised to $5.45 million in 2016. Note: The tax must be paid by the giver, not the recipient.

    Living Will

    A living will is a written legal document that defines a person’s decisions about their medical treatment in case they are incapable of expressing their wishes in any situation. This typically includes advance directives, like do not resuscitate (DNR) orders, which instruct medical staff not to put you on life support or help you in other ways if your heart stops or you stop breathing.

    Long-Term Care Insurance

    Long-term care insurance is a specific type of health insurance designed to help cover medical expenses not covered by standard health insurance, Medicare or Medicaid. This coverage typically includes things like the cost of nursing homes, skilled nursing or custodial care. As you prepare to enter retirement, it’s a good idea to see what coverage you have and if you’ll need any supplemental insurance policies.

    Keogh Plan

    A Keogh plan is a tax-deferred retirement savings plan designed to help self-employed workers save for retirement.


    Medicaid is a federally-sponsored, state-run public assistance program designed to help qualified Americans (including eligible low-income adults, pregnant women, elderly adults and disabled individuals) with their healthcare costs. Medicaid currently assists 64 million Americans (as of 2015) and covers medications, tests, and nursing home services for qualified individuals. To find out if you qualify, you can visit


    Medicare is a federal health insurance program that covers people over the age of 65 and the disabled. There are four parts to Medicare: Medicare Part A covers hospital costs, Medicare Part B covers medical expenses, Medicare Part C includes both Part A and Part B coverage, and Medicare Part D offers prescription drug coverage. For more about the types of coverage available, or to find out what coverage you have, you can visit the Medicare website at


    A pension is a retirement plan that is usually sponsored by an employer. It guarantees the person a secure income for life after they retire.

    Reverse Mortgage

    A reverse mortgage is a type of loan designed for homeowners age 62 and older. It gives these borrowers access to their home equity without selling. The lender makes payments to the borrower with a reverse mortgage. The loan is repaid from the proceeds of the estate when the borrower moves or passes away. Note: If you take out a reverse mortgage, you are still required to pay property taxes and homeowner’s insurance.

    Savings Bonds

    Savings bonds are certificates issued for a certain amount (face value of anywhere from $50 to $10,000) and are backed by the U.S. government. Bonds are free from most taxes and increase in value over time. Plus, you can receive extra benefits if the bond is redeemed to pay for college expenses. You can compare different kinds of bonds by visiting, and you can calculate the value of any savings bonds you have at

    Supplemental Security Income

    Supplemental Security Income (SSI) is a federal Social Security program that provides monthly income to people who are 65 or older and have little or no income, or who are blind or disabled. This income is intended to help provide for food, clothing and shelter and, although the Social Security Administration issues these funds, it is not the same as Social Security benefits.

    Uniform Gifts to Minors Act (UGMA) & the Uniform Transfers to Minors Act (UTMA)

    You can make gifts to a custodial account set up by parents of a child under 18. Gifts to a custodial account are counted as taxable income to the child, however. You can gift cash, investments, real estate, and more through these accounts. It’s a good idea to speak with an investment advisor before opening this kind of account, as they can help you avoid some of the troubles that could arise with these types of accounts if you aren’t careful.


    A will, also referred to as a last will and testament, is a legal document that specifies your final wishes and how you would like them carried out once you have passed away. This can include things like who you would like to act as guardian to your children, who will manage your estate (the executor) and who will receive your estate after you die (the beneficiaries).

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