A Compulsive’s Glossary of Retirement Terms

For the nerds who made it this far, Dudley thought a glossary might be helpful. These are not necessarily the definitions used by financial professionals. These are what the terms appear to mean once you actually retire.

Asset Allocation

The precise percentage of stocks and bonds you carefully selected after months of research, which will be completely different six months later because one of them went up.

Bear Market

A temporary decline in the stock market during which prognosticators explain why everything is terrible and Dudley is no longer allowed to check the one-pager before breakfast.

Bull Market

The period when everyone becomes convinced they are good at investing.

Bond

The boring investment Dudley spent twenty years making fun of and then suddenly found extremely attractive when he realized he no longer had a paycheck.

Bucket Strategy

Putting your money into imaginary containers so you can feel better when one very real container loses 23 percent.

Cash Reserve

Money intentionally earning less than everything else so you can sleep at night.

Turns out sleep has a return.

Compound Interest

The mathematical principle proving that the best time to start saving was thirty years ago.

Thank you. Very helpful.

Cost Basis

A number you desperately need for tax purposes involving something you bought in 1997.

Good luck.

Diversification

Owning enough different investments that you are never entirely sure what caused you to lose money today.

Emergency Fund

Money reserved for unexpected expenses such as furnaces, roofs, transmissions and children.

Mostly children.

Expense Ratio

A tiny percentage that seems irrelevant until Dudley puts it into a spreadsheet for thirty years.

Then nobody gets to enjoy dinner.

Fiduciary

Someone legally required to act in your best interest.

Dudley found this reassuring because apparently we needed a law for that.

Financial Independence

Having enough money that you no longer have to work.

Usually followed by six months wondering what you should be doing.

FIRE — Financial Independence, Retire Early

A movement based on saving aggressively so you can stop working early.

Dudley discovered it shortly after retiring early.

Excellent timing.

Fixed Expenses

Expenses that supposedly do not change.

They change.

Guardrails

A sophisticated retirement spending strategy in which you agree to spend less when the market falls.

Also known as Betty saying, “Maybe we don’t need to go to Cancun this year.”

Inflation

The reason the retirement plan you built last year is already wrong.

IRA

An account you spent decades putting money into and are now strangely reluctant to take money out of.

IRMAA

A Medicare surcharge for people with higher incomes.

Also the moment Ray discovered that making too much money in retirement was apparently another problem Dudley needed to research.

Long-Term Care

The subject everyone agrees is extremely important and then immediately changes.

“So. How about those Hawkeyes?”

Medicare

Government health insurance that begins at sixty-five and somehow requires considerably more research than simply going to the doctor.

Monte Carlo Simulation

Running your retirement plan through thousands of possible futures so the computer can tell you there is an 87 percent chance you are fine.

Dudley immediately asks what happens in the other 13 percent.

There goes Saturday.

Net Worth

Everything you own minus everything you owe.

A very impressive number that cannot buy groceries until you start moving some of it around.

One-Pager

Dudley’s attempt to compress forty years of financial uncertainty into something Betty will actually look at.

Portfolio Rebalancing

Selling some of the thing that has been doing great and buying more of the thing that has been disappointing you.

Apparently this is discipline.

Projection

A carefully calculated estimate of what will happen thirty years from now based on assumptions that will be wrong by Tuesday.

Required Minimum Distribution — RMD

The government eventually saying, “You have enjoyed that tax deferral long enough.”

Retirement Income

Money arriving in your checking account without anybody making you attend a meeting.

This takes some getting used to.

Retirement Planning Software

A tool that allows you to change one assumption and immediately destroy your entire retirement.

Dudley recommends changing it back.

Return Assumption

The number Dudley changes until ProjectionLab stops frightening him.

Roth Conversion

Paying taxes now so Future Dudley may pay fewer taxes later.

Future Dudley has contributed nothing to this effort.

Safe Withdrawal Rate

A percentage researchers believe you can withdraw from your portfolio without running out of money.

Dudley prefers the technical term:

Close enough.

Sequence-of-Returns Risk

The possibility that the market crashes immediately after you retire.

Basically the market waiting thirty-five years for you to stop working and then saying, “Oh, good. You’re free.”

Social Security

Money you spent your entire career being told would not exist when you retired.

Dudley checks the website anyway.

Tax-Deferred

A phrase meaning the government has patiently agreed to collect its money later.

It remembers.

Taxable Account

An investment account where the government prefers not to wait.

Travel Budget

A carefully planned annual spending category that Betty interprets as a starting point.

Variable Expenses

Expenses you supposedly control.

See also: Costco.

Volatility

The financial industry’s preferred word for watching $74,000 disappear from your portfolio while everyone tells you not to do anything.

Withdrawal

Taking money out of the retirement accounts you spent thirty years being told never to touch.

The first one feels like committing a felony.

Withdrawal Strategy

Deciding which account to take money from first based on taxes, markets, Medicare, Social Security, Roth conversions, RMDs and approximately eleven other variables.

Eventually Betty asks whether they can just buy groceries.

The 4% Rule

A useful retirement guideline that has produced approximately four million internet arguments about whether the correct number is actually 3.5, 3.7, 3.8, 4.0, 4.2 or something else entirely.

Dudley read most of them.

This was a mistake.

The Retirement Number

The amount of money you believe you need before you can retire.

It increases every time you Google it.

The Plan

A detailed prediction of what your money will do for the next thirty years.

Reality

What actually happens.

Retirement

The period of life Dudley spent years trying to model.

Turns out it mostly involves coffee, errands, people you love, things breaking, unexpected expenses, market declines, flowers, projects, dinners with friends, helping somebody when you can and occasionally wondering what day it is.

There wasn’t a field for most of that in ProjectionLab.