7 Financial Terms Retirees Must Know About

Retirement terms may at times trigger a feeling of confusion since they appear like combined alphabetic. Since you are supposed to start creating a nest egg, these terms may make it appear like a confusing and challenging task. That is why you will require more research. To make your research work easier, here are eight most commonly used financial terms that retirees must know.


A fiduciary refers to a financial expert legally necessary in recommending the investments that interest their clients, not the finances that generate huge profits for the consultant.

As of April 2017, advisors making investment advice to IRA participants or 401(k) were considered fiduciary. Currently, the fiduciary standards only take into account the retirement accounts, which are usually tax-advantaged. Hence, it is important to inquire from potential investment advisors whether they are prepared to be your investments fiduciary besides retirement accounts.

401(k) Plan

This is an employer-pay for savings account for retirement that permits employees to reschedule disbursing income tax on the savings. At times the employer may be making the payments to the saving accounts for their employees or matching the workers’ deposits.

However, the accounts usually charge a penalty of 10% on account withdrawals before 55 years. Also, the distributions are usually prerequisites after 70 1/2. Any withdrawal done on the account is subject to income tax.


Although you can keep the savings in a 401(k), it might not be possible to take the workers’ deposits in your account once you end the job before vesting to a 401(k) plan. Generally, most employers allow you to have the 401(k) plan match after working for several years for the company. However, some employers will allow you to have a certain 401(k) match percentage based on the years of service. You require to pay close attention to your vesting schedule as you settle on career decisions. For instance, you may consider seniors insurance.

Whereas you might not want to shun your dream career, sometimes sticking around for few months may boost your nest with some extra thousand dollars.

Target-date Fund

This is an expanded investment with a mix of cash, equities, and bonds. A financial manager will gradually shift your investment to help you gain a more conservative investment over time.

Depending on how you will invest, the target-date funds will differ greatly when an employee reaches 65. And hence it is very important to check whether your fund matches the risk tolerance. However, this is an automatic process for employees who, by default, joined in the 401(k) plan.

Automatic Enrollment

Most 401(k) plans automatically enrol new and existing workers in the 401(k) plan. This is where a part of your salary gets withheld automatically, and it gets deposited to your retirement account. The employer is the one who selects the rates of savings and the investment amount, and this is the target-date fund. In other instances, the contribution amount will increase over time. Employees may leave or stop the contributions at any time.

Index Fund

This refers to a collection of bonds or stocks meant to capture the whole bond or stock market gains or a particular market sector. The investment cost is a bit low because active management doesn’t exist, and little trading occurs. This fund is an example of diversified investment, which allows you to enjoy bond or stock market returns.

Individual Retirement Account (IRA)

IRA permits employees to defer income tax payment on around $5,500 that gets deposited in your account. Any employee who is over 50 has the opportunity to delay taxes on an extra $1000. If you withdraw before 59 ½, you will attract a 10% penalty for early withdrawal.

However, there exist some exceptions in case the money gets withdrawn for particular purposes. On every distribution, you should pay income tax unless it gets transferred to a qualifying charity directly. Also, you will make withdrawals after age 70 ½.

Roth IRA

These are contributions made together with after-tax dollars; however, the growth of investment account is not taxed. Also, if your account is over five years old, any withdrawals you make after age 59 1/2 are tax-free. These accounts are a great deal for youths and individuals who are in the bracket of low tax.

Roth IRAs do not have any withdrawal requirements so long as the original account holder is still running it. Their funds can grow without getting taxed and pass the same tax-free funds to beneficiaries. Other employers offer the option of Roth 401(k). This option has a withdrawal requirement after retirement, and the contribution limit is higher.


Finally, financial terms are not always easy to understand. Going through them feels like a very difficult task. Discussed above are the eight most commonly used terms that every retiree should know.


Lizza is a Content writer, Copywriter, Digital marketing expert and blogger. Her main objective is to make others life smooth and easy by providing digital marketing services, SEO, SMM, PP and many more digital marketing services. You can read more Biographies. Techi ideas, Homes Updates, 365 Days Tips, Reviews Consult, Business Magazine Us, >, The Guide Gator

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