Key terms every Big Three retiree should understand. Bookmark this page for quick reference.
A tax-advantaged retirement savings plan offered by employers. Contributions are typically made pre-tax, reducing your taxable income, and grow tax-deferred until withdrawal.
Basic self-care tasks used to measure a person's functional status. The six ADLs are bathing, dressing, eating, toileting, transferring (moving), and continence. Inability to perform ADLs typically triggers long-term care insurance benefits.
A financial product that provides a guaranteed stream of income, typically for life. Pension annuities offer predictable monthly payments but cannot be passed on to heirs after death (unless a survivor option is elected).
The person or entity designated to receive assets from a retirement account, life insurance policy, or pension upon the account holder's death.
An annual increase to benefits (like Social Security or some pensions) designed to keep pace with inflation. Many Big Three pensions do NOT include COLA, meaning purchasing power decreases over time.
A traditional pension plan where the employer promises a specific monthly benefit at retirement, calculated using factors like salary history and years of service. Big Three pensions are defined benefit plans.
A retirement plan where the employee and/or employer contribute to individual accounts. The retirement benefit depends on contributions and investment performance. 401(k) plans are defined contribution plans.
A person or firm legally obligated to act in their client's best interest. Fee-only fiduciary advisors cannot earn commissions from product sales, eliminating conflicts of interest. Richard W. Paul & Associates is a fiduciary.
A surcharge added to Medicare Part B and Part D premiums for higher-income beneficiaries. Large retirement distributions (like a pension lump sum) can trigger IRMAA in subsequent years.
A tax-advantaged account for retirement savings. Traditional IRAs offer tax-deferred growth with deductible contributions. Roth IRAs offer tax-free growth and withdrawals.
A one-time payment representing the present value of your pension benefit. Choosing a lump sum gives you control over investments but transfers longevity and market risk to you.
Federal health insurance program for people 65 and older (or with certain disabilities). Part A covers hospital stays, Part B covers outpatient care, Part C (Medicare Advantage) is private coverage, and Part D covers prescriptions.
Private insurance policies that help pay costs not covered by Original Medicare, such as copays, coinsurance, and deductibles. Different standardized plans (A, B, C, D, F, G, K, L, M, N) offer varying coverage.
A tax strategy for company stock held in a 401(k). Instead of rolling stock into an IRA, you can distribute it to a taxable account, paying ordinary income tax only on the cost basis. Future gains are taxed at lower capital gains rates.
A retirement benefit providing regular payments based on years of service and salary. Big Three employees with sufficient tenure are eligible for pension benefits, which can be taken as monthly annuity payments or a lump sum.
An investment advisory firm registered with the SEC or state regulators. RIAs have a fiduciary duty to act in clients' best interests. Richard W. Paul & Associates is an SEC-registered RIA.
The minimum amount you must withdraw annually from tax-deferred retirement accounts starting at age 73 (as of 2023). Failure to take RMDs results in a 25% penalty on the amount not withdrawn.
Moving retirement funds from one account to another (e.g., 401(k) to IRA) without triggering taxes. Direct rollovers transfer funds institution-to-institution; indirect rollovers involve receiving a check and redepositing within 60 days.
Moving funds from a traditional IRA or 401(k) to a Roth IRA. You pay income tax on the converted amount, but future growth and qualified withdrawals are tax-free. Strategic conversions can reduce lifetime taxes.
A retirement account funded with after-tax dollars. Contributions are not tax-deductible, but qualified withdrawals (after age 59½ and 5-year holding period) are completely tax-free, including all growth.
An additional retirement benefit for executives and highly compensated employees, typically providing benefits above standard pension limits. SERP elections often involve complex timing and tax considerations.
Federal program providing retirement, disability, and survivor benefits. Benefits are based on your 35 highest-earning years. You can claim as early as 62 (reduced) or delay until 70 (increased by 8% per year after full retirement age).
Pension option that provides continued payments to a spouse or beneficiary after the retiree's death. Choosing survivor benefits typically reduces the monthly payment amount during the retiree's lifetime.
Investment growth that is not taxed until funds are withdrawn. Traditional 401(k)s and IRAs are tax-deferred accounts. While contributions reduce current taxes, withdrawals are taxed as ordinary income.
The process of earning ownership of employer-contributed retirement benefits over time. Once fully vested, you own 100% of those contributions even if you leave the company.
A taxable investment account with no special tax advantages or contribution limits. Unlike IRAs or 401(k)s, contributions are made with after-tax dollars, but there's more flexibility—no early withdrawal penalties or RMDs.
A direct transfer of funds from an IRA to a qualified charity. QCDs count toward your RMD but aren't included in taxable income, making them a tax-efficient way to give for those 70½ or older.
Under the SECURE Act, most non-spouse beneficiaries who inherit an IRA must withdraw all funds within 10 years of the original owner's death. This can create significant tax burdens for heirs.
A series of substantially equal periodic payments (SEPP) from a retirement account that allows penalty-free withdrawals before age 59½. Payments must continue for 5 years or until age 59½, whichever is longer.
An insurance contract where payments vary based on the performance of underlying investments you choose. Offers potential for growth but carries market risk and typically has higher fees than other annuity types.
A fixed annuity that guarantees a set interest rate for a specified period (typically 3-10 years). Similar to a CD but offered by insurance companies, often with higher rates and tax-deferred growth.
An annuity with returns linked to a market index (like the S&P 500) but with principal protection. Offers upside potential with caps or participation rates, while protecting against market losses.
An annuity purchased with a lump sum that begins paying income immediately (or within a year). Provides guaranteed lifetime income but typically cannot be changed once purchased.
An investment fund that trades on stock exchanges like individual stocks. ETFs typically track an index and offer diversification, low costs, and tax efficiency compared to mutual funds.
A pooled investment vehicle managed by professionals that invests in stocks, bonds, or other assets. Investors buy shares and share in the gains, losses, and expenses. Priced once daily after market close.
An investment fund with a fixed number of shares that trade on exchanges. Unlike mutual funds, they can trade at premiums or discounts to their net asset value and may use leverage.
The Social Security benefit amount you'd receive if you claim at your full retirement age (FRA). Your PIA is calculated based on your 35 highest-earning years, adjusted for inflation.
The age at which you're entitled to your full Social Security benefit (PIA). For those born 1960 or later, FRA is 67. Claiming before FRA reduces benefits; claiming after increases them.
The increase in Social Security benefits for delaying claims past your full retirement age. Benefits grow by 8% per year (0.67% per month) until age 70, resulting in up to 24-32% higher lifetime benefits.
Our team specializes in helping Big Three retirees navigate these complex decisions.
Schedule a Free Call