This article will attempt to provide some basic information related to retirement planning. The Fidelity website has a lot of good information, diverse investment options, and was the 401(k) provider of a former employer, so it is used is most examples. This article is not an endorsement of an service company or investment option. Do your own research, make a plan, and follow it.

• Introduction
• Finances
• Retirement Savings
• Retirement
• Terms and Appendix

These are terms used in this article in the retirement planning section. The terms may be simplified from official definitions.

• Asset Allocation – the percentage of your assets assigned to specific classes of investments. At the high level, this is often just four classes – Domestic Equity, Foreign Equity, Bond, and Cash.
• Balanced Investment – A portfolio that has an asset allocation with similar proportions of equity and fixed income investments. An asset allocation in the range of 60/40 to 40/60 with a goal of at least 6% average annual investment return with a moderate risk. The names will vary by investment company. You might see asset allocation names like Moderate, Balanced, Growth with Income, Balanced with Income, Balanced, Balanced with Growth.
• Bond – a non-equity investment commonly used for retirement income. This includes corporate bonds, treasury bonds, or investments composed of these (e.g. mutual fund of bonds). Bond investments typically have lower returns and less volatility, but there are low quality bonds with higher returns and risk.
• Capital Gain – a capital gain is the result of an investment increase in value to more than originally paid. A realized capital gain is when the investment is sold. An unrealized capital gain is when the investment is held. Since mutual funds can be internally composed of other investments, realized capital gains can result from changes to the internal investments.
• Cash – an investment that is a cash equivalent. These are typically some form of money market, short term investment (e.g., 3 month treasury) or mutual fund of similar investments. They are typically considered to “never” lose money, but they tend to have relatively low returns.
• Compound Interest – The alternate to simple interest where you leave your interest invested, so that your interest also gains interest. Tens years of 7% simple interest is 70% more money. Tens years of compound interest is 100% more money.
• Direct Rollover – a safer form of rollover where your retirement plan savings are directly transferred from one retirement account to another retirement account. There should be no taxable event.
• Discretionary Expenses – these are purchases and subscriptions that are not required for normal living. Some people might disagree, but beer is a discretionary expense. Sadly, Mountain Dew and Oreo Cookies are too.
• Discretionary Spending – money spent on discretionary expenses.
• Dividend – a dividend is distribution of profits paid by an investment. Taxes are paid at the ordinary income rates.
• Dollar Cost Averaging – the act of investing a fixed amount on periodic intervals, preferably automatically. It removes emotion from investing, and it can lower average share price.
• Domestic Equity – an equity investment composed of US equities.
• Exchange Traded Fund (ETF) – a collection of investments similar to a mutual fund that can be bought during the trading day similar to stocks.
• Equity – an investment in stocks or composed of stocks (e.g., mutual fund of stocks). Equities tend to have higher returns and greater volatility.
• Foreign Equity – an equity investment composed of non-US equities
• Index Fund – a mutual fund that predominantly tracks a market index (e.g., S&P500, Dow Jones, ex). These typically have lower management fees.
• IRA – Individual Retirement Account. These are individual held accounts with specific tax advantages. This term may be used in a generalized sense to refer to 401(k), Roth 401(k), TSP, SIMPLE, 403(b), Traditional IRA, Roth IRA, and other related accounts.
• Long-Term Capital Gain – a realized capital gain for a security that was held for at least one year. Taxes are paid at the lower capital gains rate.
• Mandatory Expenses – these are purchases and subscriptions that are required for normal living. This includes taxes, food, utility bills, etc. Insurance would normally fall into this category, but cable TV would not.
• Mandatory Spending – money spent on mandatory expenses.
• Mutual Fund – a collection of investments that can be sold as fractional shares. The fund can be managed or an index fund. They can only be bought at the closing price at the end of the trading day.
• Managed Fund – a mutual fund that is managed by a team of individuals to meet certain specific investing criteria. The goal is often to out perform the stock market. These typically have higher management fees.
• Management Fee – an annual fee charged for managing a mutual fund. Typically, the fee is listed as a percentage of the asset value. A lower percentage means less money is spent on management, but there may be a balance of fees versus performance. Low fees for low performance may not be the best choice.
• Qualified Dividend – a dividend from a security that has been held for a certain minimum time with a few other requirements. Taxes are paid at the lower capital gains rate.
• Rollover – a transfer from one retirement account to another retirement account. The transfer has to complete within 60 days or it is a taxable event. Being taxed on tens or hundreds of thousands of dollars would be devastating near retirement. For this reason, use a direct rollover, when possible.
• Roth IRA – a type of tax advantaged account where income is tax in the year it is earned, even when deposited in this type of account. All distributions from the account are tax free during retirement. Penalties may apply for removing the money early. Roth IRA and Roth 401(k) function in this manner, but there are contribution limits and other specifics that may vary. Earned income is generally required to deposit in these accounts.
• Sales Load – This is a fee for purchasing shares of the mutual fund. There are various forms of this labelled A, B, and C. In general, these should be avoided because sales load is money that is paid to someone else instead of working for you.
• Sequence of Investment Returns – a reference to two sequences of investment returns with the exact same average annual return that can cause a retirement plan to succeed or fail based on initial investment loses.
• Short-Term Capital Gain – a realized capital gain for a security that was held for less than one year. Taxes are paid at the ordinary income rates.
• Simple Interest – The alternate to compound interest where your interest paid out, so that your interest does not gain interest. Tens years of compound interest is 100% more money. Tens years of 7% simple interest is 70% more money.
• Traditional IRA – a type of tax advantaged account where income is not taxed in the year that it is earned, if it is deposited in this type of account. All distributions from the account are taxed as ordinary income during retirement. Penalties may apply for removing the money early. 401(k), SIMPLE, 403(b), TSP, and Traditional IRAs function in this manner, but there are contribution limits and other specifics that may vary. Earned income is generally required to deposit in these accounts.
• Volatility – higher volatility means that an investment is more likely to change significantly up or down. It implies a greater risk because it might be down when you need the value of the investment.