Glossary

A guideline suggesting you can withdraw about 4% of your portfolio in year one of retirement, adjusted for inflation thereafter.

An employer-sponsored retirement plan that lets you invest pre-tax pay, often with a match.

A simple budget guideline: 50% needs, 30% wants, 20% savings and debt repayment.

The choice between trying to beat the market and simply tracking it at low cost.

An insurance contract that pays a stream of income, often for the rest of your life.

The yearly cost of borrowing, including interest and certain fees, shown as a percentage.

The real yearly return on savings, including the effect of compounding.

How you divide your investments among stocks, bonds and cash.

Semi-retirement supported by part-time work alongside investment income.

A prolonged decline in asset prices, commonly a drop of 20% or more.

A loan to a government or company that pays interest and returns the principal at maturity.

A standard investment account with no special tax treatment or withdrawal restrictions.

Dividing retirement savings into short-, medium- and long-term buckets to manage risk.

A plan for how you will spend and save your money.

A prolonged period of rising asset prices and optimistic investor sentiment.

The profit you make when you sell an investment for more than you paid.

The money moving in and out of your budget over a period of time.

Having invested enough early that growth alone will reach your retirement goal without further contributions.

Earning returns on both your original money and the returns it has already earned.

The amount of money needed to cover basic expenses in a given place.

A number that summarises your creditworthiness to lenders.

Paying off debts highest interest rate first to minimise total interest paid.

Paying off debts smallest to largest to build motivation from quick wins.

Non-essential spending on wants rather than needs.

Spreading investments across many assets so no single holding can sink your portfolio.

A share of a company's profits paid out to shareholders, usually in cash.

Automatically using dividends to buy more shares instead of taking them as cash.

Investing a fixed amount at regular intervals regardless of price, smoothing out market swings.

The peak-to-trough decline of an investment during a specific period.

The average percentage of your total income that you actually pay in tax.

Cash set aside for unexpected expenses, kept separate from long-term investments.

Money your employer adds to your retirement account based on your own contributions.

A fund that trades like a stock and usually tracks an index at low cost.

The annual fee a fund charges, expressed as a percentage of your investment.

Reaching financial independence with a generous lifestyle and a larger portfolio.

The state in which your investment income can cover your living expenses, making paid work optional.

The size of portfolio you need to be financially independent — often about 25 times your annual expenses.

The distinction between costs that stay the same each month and those that change.

Being intentional and efficient with spending to get more value from your money.

Earning in a high-cost area or currency while living in a lower-cost one to stretch your money.

A distinction between borrowing that can build wealth and borrowing that drains it.

Your total income before any taxes or deductions are taken out.

A triple-tax-advantaged US account for medical costs that can double as a retirement tool.

The economic value of your skills, knowledge and ability to earn income.

A low-cost fund that tracks a market index, providing broad diversification in a single investment.

The gradual rise in prices over time, which reduces the purchasing power of money.

Reaching financial independence on a lean, low-cost budget with a smaller portfolio.

The tendency to spend more as your income rises, eroding your savings rate.

How quickly and easily an asset can be turned into cash without losing value.

The tax rate applied to your next dollar of income.

The total value of a company's shares — its share price multiplied by shares outstanding.

A pooled investment that spreads money across many holdings, priced once per day.

Everything you own minus everything you owe.

The stated return on an investment before adjusting for inflation.

The value of the best alternative you give up when you make a choice.

Income that requires limited ongoing effort to maintain once established.

An employer-funded plan that pays a defined income in retirement, usually based on salary and service.

Your investment return after subtracting inflation.

Periodically adjusting your portfolio back to its target mix of investments.

The minimum amount you must withdraw each year from certain retirement accounts once you reach a set age.

How much investment volatility you can accept — financially and emotionally.

An automated service that builds and manages a diversified portfolio for a low fee.

An employer plan that combines a 401(k)'s high limits with a Roth's tax-free withdrawals.

A strategy that moves retirement money to a Roth account over years to access it early with low tax.

A retirement account funded with after-tax money that can grow and be withdrawn tax-free.

A quick way to estimate how long it takes money to double: divide 72 by the annual return.

The rate at which you can withdraw from a portfolio each year with a high probability it will last through retirement.

The percentage of your take-home pay that you save and invest rather than spend.

The danger that poor market returns early in retirement permanently shrink your portfolio.

Income-generating work done alongside your main job.

Money saved gradually toward a known future expense.

A US government program providing retirement, disability and survivor income benefits.

A share of ownership in a company, entitling you to part of its future value.

The money that actually reaches you after taxes and deductions — your net income.

A fund that automatically shifts to a more conservative mix as a chosen retirement year approaches.

Money your employer sends to the tax authority from each paycheck toward your tax bill.

An account that reduces taxes on your investments, either now or in the future.

Selling investments at a loss to offset taxable gains and lower your tax bill.

How long you plan to keep money invested before you need it.

An investment's full return, combining price change plus income like dividends and interest.

A retirement account where contributions may be tax-deductible now and taxed on withdrawal.

The process of gradually earning full ownership of employer-provided benefits over time.

How much an investment's price fluctuates over time.

A sudden, often unexpected sum of money, such as a bonus, inheritance or tax refund.

The income an investment produces, expressed as a percentage of its price.

A method where every dollar of income is assigned a job until nothing is left over.