Select Page

7 Retirement Terms You Need to Know

May 29, 2024

Retirement planning should start as early as now for everyone. The earlier you start locking down your future, the easier it is to plan, the earlier you will retire, and the more financially stable you will be when you stop working. 

Before you start planning for your retirement you’ll need to learn some fundamental retirement terms. Familiarizing yourself with the retirement planning language is critical for making sound decisions about your financial future. It enables you to manage the complexity of retirement investing, ensuring that you choose solutions that match your objectives and risk tolerance. 

To ensure a comfortable retirement, it’s wise to start learning about some essential planning terms. Here are seven terms you need to know before building your retirement plan. 

1.    Workplace Retirement Plan – 401(k), 403(b), 457(b) 

One of the most common ways people save for retirement is by contributing to a a workplace retirement savings account that many employers offer. So, what is a workplace retirement plan and how does it work?  

There are several, but the most common are 401(k), 403(b), and 457(b) – all derived from the IRS code that sets out the rules for these type of accounts. According to these IRS rules, the government allows companies to offer retirement savings accounts with certain tax advantages to encourage people to save for retirement.  

When you sign up for a 401(k), 403(b), or 457(b), you will set an amount or percentage to be automatically deducted from your paycheck to fund the account. A traditional plan deducts the amount you contribute from your taxable income. So, if you earn $100,000 in a year and contribute $10,000 to your plan, your taxable income for the year will be $90,000, reducing the amount you must pay tax on that year.

2.    Annuities 

Annuities are also an income-generation tool. They’re like a deal you make with an insurance or financial firm, where you give them some money (depending on the agreement), and they promise to pay you back with regular income later, for a specific period or a lifetime. It’s more like having a guaranteed income stream for the future 

Annuities are tax-deferred. This means you raise your potential for compounding unlike investing in the stock market or mutual funds, both of which are subject to annual taxation. Annuities offer a steady income stream in retirement, which can be reassuring when you are no longer working. 

There are different forms of annuities to choose from, including: 

  • Fixed Annuities: With fixed annuities, a lump sum is given to an insurance company, which promises to pay a fixed amount of money regularly for a set period, often for life. This option provides stability and predictability. 
  • Index Annuities: Index annuities tie your earnings to the performance of a stock market index, like the S&P 500. You have the potential to earn more than with a fixed annuity, but there’s a cap on earnings and protection against market downturns. 
  • Immediate Annuities: Immediate annuities start paying you regular income shortly after you invest a lump sum. It’s a suitable choice if you need immediate funds during retirement. 
  • Variable Annuities: Variable annuities involve investing your money in different options, such as separate accounts that act similarly like mutual funds. Your payments can fluctuate based on the performance of your investments. While riskier, this option offers the potential for higher returns. 

Annuity contracts and the fees involved can get complicated, so it’s wise to seek advice from a financial expert before buying one. 

3.    IRA (Individual Retirement Account) 

An individual retirement account works like a retirement savings account. While it might sound more like saving money in a savings account, it’s different. Unlike a savings account, an IRA lets you put your money into market-based investments such as stocks, bonds, mutual funds, etc.  

The return rate for IRAs differs over time and can be higher or lower. However, historically, we have seen the market deliver an average rate of return from 7-10%. For instance, if you have $10,000 in IRA, you would expect to make $700 after your first year. 

There are two types of IRAs, namely, traditional and Roth. With a traditional IRA, you will only pay taxes on the money you are saving once you withdraw it, which is basically when you retire. On the other hand, with a Roth IRA, you pay taxes for the money you put in now, but you won’t pay any taxes when you start withdrawing it later, which is a significant advantage in retirement. 

4.    Dollar-Cost Averaging 

When trading in stock and other assets, you typically buy when the prices go down and sell when the prices go up. However, the biggest challenge is perfect timing for any of the two, and that’s where the concept of dollar-cost averaging comes in. 

Dollar-cost averaging involves regularly investing a certain amount of money in a particular security, regardless of the price at the time of purchase. This is an excellent way for individual investors to start buying a specific stock because they don’t have to pay that much out of pocket every month. It also reduces the risk of huge investments in a single security. 

5.    Defined Benefit Plan 

With a defined benefit Plan, the employer promises a series of annuity payments to the employee for the rest of their life after retirement. Now, the employer is responsible for ensuring there is enough money to pay the employee after retirement. Therefore, it is safe to say that the risks associated with the defined benefit plan are with the employer. 

Pensions are the most common type of defined benefit plans. Defined benefit plans are less common because the employer assumes more risks and costs when funding and managing investments.  

6.    Mutual Funds 

A mutual fund is like a pool of investment funds. It involves thousands or even millions of investors pooling their money to buy various investments, such as stocks, bonds, and currencies, which are blended and shared amongst the participants. 

You can invest in a variety of mutual funds, depending on your investment preferences. For instance, some focus on a specific sector of the economy, like technology, agriculture, or retail, while others invest in particular areas of the world, like emerging markets (developing nations), or even the size of companies, say large-cap or micro-cap 

Mutual funds are usually affordable, and you get the advantage of diversification without buying hundreds or thousands of shares yourself. However, there are costs involved. Every mutual fund has an upkeep fee called an Annual Expense Ratio, which ranges from 0.1% to 2% of the value per year. Some funds also charge an extra fee called a LOAD when you buy or sell your shares, usually between 1% and 5.75% of the sale price. 

Typically, mutual funds are actively managed, where experts select and trade securities in hopes of making profits.  

  1. Exchange-traded Funds (ETF) 

An ETF is like a mutual fund except for publicly traded shares on a stock exchange. An ETF is similar to a mutual fund in that it buys up a pool of assets and then issues a large number of shares to investors so that small investors can buy some shares and, therefore, own a portion of the fund’s overall assets. 

Exchange-traded funds, or ETFs, offer diversification by spreading your money across various investments, reducing risk and making them an excellent retirement option. You can keep more of your retirement savings because they are typically less expensive than alternative options. 

ETFs move similarly to stocks, making it simple to buy and sell them and providing the freedom to change your investments as necessary. They are ideal for retirees because they focus on producing consistent income. Additionally, they are frequently tax-efficient, which means your investment taxes may be lower. 


If you are preparing for good and enjoyable retirement years, you need to understand these seven terms related to retirement. Understanding these terms gives you the confidence to navigate the complexity of retirement planning. You can easily choose your retirement savings and investing methods more wisely if you are familiar with terms like annuities, IRAs, defined contribution plans, mutual funds, index funds, ETFs, and tax efficiency. 

If you want to take control of your financial future, you need experts to help you. Trust in TCG, a HUB International Company, for sophisticated yet approachable financial planning and investment management services. With our expertise, we tailor solutions to match your unique needs, ensuring a secure retirement. Don’t wait—reach out to TCG today and pave the way for a prosperous tomorrow.  




Investment advisory services offered through TCG Advisors, an SEC registered investment advisor. Insurance Services offered through HUB International. TCG Advisors is a subsidiary of HUB International.  

Recordkeeper and Third Party Administrator services offered through TCG Administrators, a HUB International Company. HUB FinPath is offered through RPW Solutions. Tax Services offered through RPW Solutions. Cypher offered through Cypher Security, LLC. Consulting Services offered through TCG Consulting Services, LLC. TeleWealth virtual meetings offered through TCG Advisors LLC, a HUB International company, an SEC Registered Investment Advisor.  

Legal and Tax advice may be provided by Hessler Legal, an unaffiliated law firm. Certain of TCG Advisors’ investment advisory representatives may also be affiliated with Hessler Legal. TCG Advisors does not receive compensation from Hessler Legal for referrals. 

This website is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, or as an offer to provide advisory or other services in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. 

Financial assistance is available! Get matched with a Financial Advisor:

Find an advisor

You don’t have to figure things out on your own. Click below to get matched with an advisor.

Get started →

Retirement Readiness Analysis

Schedule a meeting with a Retirement Plan Specialist find out your retirement income gap and when you can afford to retire.

Schedule now →

A Better Small Business 401(k)

Don’t let your employees pay high fees and get stuck with bad investments. Request a no-cost analysis today!

Request a demo →

Connect with Us

Related Posts

Share This