10 Common Retirement Terms You Should Know

retirement terms

Retirement jargon can be confusing. What is an actuarial analysis or vesting schedule anyways? To add to the confusion, these words often have different meanings inside and out of the retirement realm.

Most frequently asked questions involving post-career life revolve around these 10 retirement terms. Learning each of these commonly-used financial concepts should help your confusion dissipate and make your navigation through retirement planning feel a little bit easier.

1. Accrued Benefits: These are benefits that have already been earned but have not been paid to you yet.

2. Actuarial Analysis: Actuaries are business professionals who measure and manage risk. They analyze statistics to help make educated predictions about future events and are often involved with retirement and insurance planning. An actuarial analysis is the examination of risk.

3. Age of Retirement: The age of retirement can really be whenever you want it to be, based on your needs and wants for your retirement future. However, in regards to qualifying for Social Security benefits, the age at which one can claim full benefits is age 66. You can qualify for early Social Security benefits at the age of 62, but doing so results in a decrease in your total benefit by 25 percent. 

4. Annuity: The use of an annuity provides a fixed sum of money paid out each month or year for a specified duration of time, often the rest of one's life.

This is typically used by investments, retirement, or insurance that pays out a series of payments, as detailed during the creation of the annuity.

5. Beneficiary: A beneficiary is a person or entity (like a trust) that YOU choose to pass along your assets to if you pass away. Secondary beneficiaries, or contingent beneficiaries, are used if the initial beneficiary can’t be located, refuses the inheritance, or has already passed away.

6. Blackout Period: When there are major changes that need to be made to a new or existing plan, a blackout period occurs. Typically, these blackout periods lock up the money inside the plan for 3-60 days. In addition, changes to investment options or alterations to an account in any way are not allowed during this lock-out period. 

7. Compound Interest: This is interest that is calculated on both the principal balance and any interest that is earned. It is the preferred way for interest to be calculated, as simple interest is based only on the principle amount and disregards interest.

8. Rollover: A rollover occurs when moving retirement funds from one account to the other, like you would do when moving money from a previous employer's retirement plan to a new employers’ retirement plan. Another situation that would warrant a rollover is if you are moving funds from an employer plan to an Individual Retirement Account (IRA) or vice versa.

9. Trust: This is a legal entity, typically a form that is created with an attorney, that enables you to specify how your assets will be distributed when you pass away.

1 0. Vesting Schedule: This is where the employee “earns” a higher percentage of the employer contribution with an increase in the years that they have worked for their company.

For example, after the first year of service, they might be eligible for 20 percent of employer contribution. After year two, they might be eligible for 40 percent of the employer contribution. This percentage would continually increase until an employee has “earned” 100 percent of the contributions made into their account by their employer.

Now that you’ve learned more about the terms on this list, you’ll hopefully be able to start preparing (if you haven’t already) for life in retirement. Understanding these financial concepts will aid your planning and help you more effectively communicate with an employer or an advisor you’ve sought out for help.  

Finally, don’t let the confusion of these words discourage you from jumping into the retirement planning scene and getting your retirement back on track or started.

Retirement planning is a key life skill to master if you want to be your own personal Money Manager so make sure to do your research! To learn more about types of retirement plans, common FAQ’s, and retirement calculators visit PowerOverLife.