Glossary

Every financial term used in the course, in plain language. Terms in lessons are underlined with dots; hover or focus them for the definition.

4% rule: A historical rule of thumb that withdrawing 4% of savings in the first year of retirement, then adjusting for inflation, lasted 30 years in most past US markets. A reference point, not a guarantee.
401(k): A retirement plan offered by an employer. You contribute from your paycheck, often with an employer match. 403(b) and 457 plans work similarly for nonprofits and governments.
50/30/20 guideline: A starting reference for a budget: about 50% of take-home pay to needs, 30% to wants and 20% to savings and extra debt payments. Useful as a check, not a rule.
APR: Annual percentage rate, the yearly cost of borrowing. Credit cards often charge 20% or more.
Amortization: Paying off a loan with equal payments over time. Each payment covers that month's interest first and the rest reduces the principal, so early payments are mostly interest.
Asset allocation: How your investments are split between stocks, bonds and cash. More stocks usually means more growth and bigger swings.
Avalanche method: Paying minimums on every debt, then sending every extra dollar to the debt with the highest interest rate. It costs the least interest overall.
Blended growth rate: One assumed yearly return for an account, reflecting its overall mix of investments. It's an assumption, not a promise.
Brokerage account: A regular investment account with no special tax treatment and no contribution limits. Gains are taxed, often at lower long-term capital gains rates.
Budget: A plan for where your money goes each month. A good budget starts with saving, not with what's left over.
Capital gains: The profit when you sell an investment for more than you paid. Gains on investments held over a year are taxed at long-term rates of 0%, 15% or 20%, depending on income.
Catch-up contribution: Extra contributions allowed from the calendar year you turn 50 (55 for an HSA). A higher "super catch-up" applies to 401(k)s in the years you turn 60 to 63.
Claim age: When you start Social Security, from 62 to 70. Claiming early lowers the benefit for life; delaying past full retirement age raises it 8% a year until 70.
Coinsurance: Your percentage share of a health bill after the deductible, such as 20%. The plan pays the rest, until you reach the out-of-pocket maximum.
Compounding: Earning growth on past growth, not just on what you put in. The longer money stays invested, the bigger the effect.
Contribution limit: The most the IRS lets you put into an account in a year. Limits are set each year and differ by account type and age.
Copay: A flat amount you pay for some health services, such as $30 for a doctor visit or $10 for a prescription. Copays count toward the out-of-pocket maximum.
Cost basis: What you paid for an investment. When you sell, only the amount above your cost basis is a taxable gain.
Cost of living: What it costs to live in a place for a year: housing, food, transportation, insurance, health care, taxes and other basics. It varies widely between states and cities.
Credit score: A number, usually from 300 to 850, that sums up how you've handled credit: paying on time, how much you owe, and how long you've had credit. Higher scores get lower interest rates.
Deductible: What you pay for covered costs before insurance starts paying most of the bill. For health insurance it resets every plan year.
Deferral: The part of your pay you choose to put into a 401(k) or similar workplace plan, usually set as a percent of gross pay.
Diversification: Spreading money across many investments so one failure can't sink the whole plan.
Down payment: The part of a purchase price you pay up front in cash, with a loan for the rest. A bigger down payment means a smaller loan and less interest.
Early withdrawal penalty: An extra 10% tax on most withdrawals from traditional retirement accounts before age 59½. Some exceptions apply.
Effective tax rate: Your total tax divided by your total income. It is lower than your marginal (top bracket) rate, because lower slices of income are taxed at lower rates.
Emergency fund: Cash set aside for surprises such as a job loss, medical bill or car repair. The usual guideline is 3 to 6 months of needs, kept somewhere safe and easy to reach.
Employer match: Money your employer adds to your 401(k) based on what you put in, following a formula such as "100% of the first 4% of pay." If you don't contribute enough, you don't get the full match.
Expense ratio: The yearly fee a fund charges, as a percent of what you have invested. A 1% fee takes 1% every year, whatever the market does.
FICA: The Social Security and Medicare taxes taken from your pay, 7.65% in total for most employees (6.2% Social Security up to a wage cap, plus 1.45% Medicare). Your employer pays a matching amount.
Fiduciary: A financial professional legally required to act in your best interest. Worth asking about before you hire anyone for advice.
Full retirement age: The age at which you get your full Social Security benefit. It's 67 for anyone born in 1960 or later.
Full retirement age benefit (PIA): The monthly Social Security benefit you'd get by claiming at your full retirement age. Your statement at ssa.gov shows it.
Gross pay: Your pay before anything is taken out, such as taxes, benefits and retirement contributions. Your salary is usually quoted as gross pay.
HSA: Health savings account. Available with a high-deductible health plan. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical costs are tax-free, which makes it a strong retirement account for health costs.
Healthcare bridge: In this course, the cost of health insurance between retiring and age 65, when Medicare begins.
High-deductible health plan (HDHP): A health plan with a lower premium and a higher deductible. It can be paired with a health savings account (HSA) for tax-free medical savings.
High-yield savings account: A bank savings account that pays a higher interest rate than a standard one. FDIC insurance protects deposits up to the legal limit.
IRA: Individual retirement account. You open it yourself at a brokerage or bank, separate from your employer. It can be traditional or Roth.
Index fund: A fund that holds every investment in a market index, such as the 500 largest US companies, so one purchase spreads money across many companies. Index funds usually have low fees.
Inflation: The general rise in prices over time. At 2.5% a year, prices roughly double in 28 years.
Lifestyle creep: Spending rising with every raise, so that higher income never turns into more savings.
Marginal tax rate: The tax rate on your next dollar of income. In the US, income is taxed in brackets, so your marginal rate is higher than the average rate you pay on all your income.
Median: The middle outcome: half of results are higher, half are lower.
Medicare: Federal health insurance from age 65. Retiring earlier means paying for other coverage until then.
Minimum payment: The smallest amount a credit card lets you pay by the due date without a late fee. Paying only the minimum keeps the debt for years and costs a lot of interest.
Monte Carlo simulation: Running a plan many times with randomly varying returns to see the range of possible outcomes.
Needs: Spending you can't easily avoid, such as housing, utilities, groceries, insurance, basic transportation and minimum debt payments.
Nominal (future) dollars: Amounts as they will actually appear in the future, without adjusting for inflation.
Non-elective contribution: Money an employer adds to your 401(k) whether or not you contribute, for example 3% of pay.
Out-of-pocket maximum: The most you pay in a year for covered, in-network health care: deductible, copays and coinsurance together. After that, the plan pays 100%. Premiums don't count toward it.
Pay yourself first: Setting aside savings as soon as you're paid, ideally automatically, before spending on anything else.
Payroll deductions: Amounts your employer takes out of each paycheck, such as income tax, Social Security and Medicare tax (FICA), health insurance premiums and 401(k) deferrals.
Percentile: A way to rank outcomes. The 10th percentile outcome is one where 90% of simulated futures did better.
Pre-tax deduction: Money taken from your paycheck before taxes are calculated, such as health insurance premiums, HSA or FSA contributions and traditional 401(k) contributions. It lowers your taxable pay, so you pay less tax.
Premium: What you pay to have an insurance policy, usually every month, whether or not you use it. Health insurance premiums never count toward the out-of-pocket maximum.
Principal: The original amount saved or borrowed, not counting interest. Loan payments are split between interest and principal.
Private mortgage insurance (PMI): Insurance that protects the lender when a home buyer puts down less than 20%. It adds to the monthly payment and can usually be removed once you own enough of the home.
Probability of success: The share of simulated futures in which the money lasted through the plan-to age.
Property tax: A yearly tax on real estate, set by counties, cities and school districts as a percent of a home's assessed value. Owners pay it directly; renters pay it indirectly through rent.
Real return: Growth after subtracting inflation. A 6% return with 2.5% inflation is roughly a 3.4% real return.
Required minimum distribution (RMD): The minimum you must withdraw from traditional retirement accounts each year once you reach the required age (73 or 75, depending on birth year).
Roth IRA income limit: Above certain incomes, the amount you can contribute directly to a Roth IRA shrinks, then reaches zero. The limits change every year.
Roth account: An account funded with after-tax money. You get no tax break now, but qualified withdrawals, including growth, are tax-free.
Rule of 55: If you leave your job in or after the year you turn 55, you can withdraw from that employer's 401(k) without the 10% early withdrawal penalty.
Rule of 72: A shortcut for doubling time: divide 72 by the yearly interest rate to get roughly how many years money (or a debt) takes to double. At 8%, about 9 years.
Sales tax: A tax added to the price of most purchases, set by your state plus your city or county. Combined rates range from 0% to about 10%. Many states don't tax groceries, or tax them at a lower rate.
Savings pool: In this course, your monthly take-home pay minus your budget. It's the money available to save and invest each month.
Section 125 plan: An employer benefits plan that lets you pay for health insurance, FSAs and some other benefits with pre-tax money. These deductions lower income tax and Social Security and Medicare taxes.
Sequence-of-returns risk: The risk that poor returns arrive early in retirement, when withdrawals do the most lasting damage, even if average returns are fine.
Simple interest: Interest paid only on the original amount (the principal), never on interest already earned. Interest = principal x rate x years.
Sinking fund: Money set aside a little each month for a known future expense, like car repairs, holidays or insurance premiums, so it doesn't become an emergency.
Snowball method: Paying minimums on every debt, then sending extra dollars to the smallest balance first. It costs more interest than the avalanche method but can help motivation.
Social Security retirement benefit: A monthly benefit from the US government, based on your earnings history, that rises with inflation and lasts for life.
Standard deduction: The amount of income the IRS doesn't tax at all. For a single person it is $16,100 in 2026. Federal income tax applies only to income above it (unless you itemize deductions instead).
Stock: A small piece of ownership in a company. Stock prices rise and fall with the company and the market; over long periods stocks have grown faster than savings, with bigger ups and downs.
Take-home pay: The pay that actually lands in your bank account, after taxes, benefits and retirement deferrals are taken out.
Tax gross-up: Withdrawing more than you need so that, after tax, you're left with the amount you need. To net $1,000 at a 12% tax rate, you withdraw about $1,136.
Today's dollars: Future amounts adjusted back for inflation, so they can be compared with prices today.
Total contribution limit (415(c)): The IRS cap on everything that goes into one person's 401(k) in a year, employee and employer money combined.
Traditional (pre-tax) account: An account where contributions lower your taxable income now, and withdrawals are taxed as income later.
Unassigned savings: Part of your savings pool you haven't directed to any account. The plan keeps it as cash so it isn't lost, but cash earns little.
Unfunded spending: In this course, spending your income and savings couldn't cover. The plan shows it as its own number so you can see how big a shortfall is.
Vehicle registration fee: A yearly state fee to keep a car legally on the road. Some states charge a flat fee; others charge more for newer, pricier or heavier vehicles.
Vesting: The schedule that decides when employer contributions become fully yours. Your own contributions are always yours; employer money may require a few years of service.
Volatility: How much returns swing from year to year. Stocks are more volatile than bonds, and bonds more than cash.
W-4: The form you give your employer when you start a job. It tells the employer how much federal income tax to withhold from each paycheck.
Wants: Spending that makes life better but could be cut in a pinch, such as dining out, entertainment, travel and upgrades.
Withdrawal order: Which accounts you draw from first in retirement. A common default is taxable accounts first, then traditional, then Roth.
Zero-based budget: A budget where every dollar of income is given a job (spending, saving or debt), so income minus the plan equals zero.