A glossary of common financial terms we hear clients asking about or unsure of.

This is by no means an all-encompassing list. If you’d like another definition added, please let me know at mark@dunesfinancial.com!

General Financial Planning & Investment:

• 4% Rule: A commonly cited guideline for safe withdrawal rates in retirement. Originally from a study in 1994 by Bill Bengen.
• 401(k): A retirement savings plan sponsored by an employer, often allowing pre-tax & Roth contributions as well as employer matching.
• Annuity: A financial product that provides a stream of income. Annuities can be as simple as one premium, one guaranteed income for life or extremely complex with egregious fees. Do your homework or unbiased professional guidance.
• Beneficiary: The person(s) or entity designated to receive the proceeds of an asset, account, or life insurance product upon the owner's death.
• Bucket Strategy: A retirement income strategy that involves dividing retirement savings into different "buckets" for different time horizons.
• Capital Gains/Losses: The profit or loss from selling an asset. Original purchase price has no tax consequence upon selling, only the profit or loss.
• COBRA: Allows temporary continuation of health insurance coverage after job loss or other qualifying event.
• Defined Benefit Plan: A retirement plan that guarantees a specific payment in retirement, typically based on years of service and salary (pension).
• Defined Contribution Plan: A retirement plan (e.g., 401(k)) where contributions are made by employees and/or employers, with the final benefit depending on investment performance.
• Estate Planning: Planning for the distribution of assets after death, including wills and trusts.
• Financial Independence: Having enough income or wealth to cover living expenses without working.
• Inflation: The increase in the price of goods and services over time.
• Inflation Risk: The risk that inflation will erode purchasing power in retirement.
• Liquidity: The ease with which an asset can be converted to cash.
• Long-Term Care: Services and support for people who can no longer perform basic daily activities.
• Medicare: Federal health insurance for people 65 and older, and some younger people with disabilities.
• Monte Carlo Simulation: A statistical method used to model the probability of different retirement outcomes.
• Net Worth: The total value of assets minus liabilities.
• Portfolio Rebalancing: Periodically adjusting a portfolio to maintain the desired asset allocation.
• Risk Capacity: An individual or household’s financial plan’s ability to withstand investment fluctuations based upon the sequence of return risk (see below in Investments).
• Risk Tolerance: An individual's ability and willingness to withstand investment fluctuations.
• Required Minimum Distribution (RMD): The minimum amount that must be withdrawn annually from certain retirement accounts starting at a specific age.
• Reverse Mortgage: A type of loan available to homeowners aged 62 or older that allows them to convert part of their home equity into cash without having to sell their home or make monthly mortgage payments.
• Roth IRA: An Individual Retirement Account that allows after-tax contributions and tax-free withdrawals in retirement.
• Savings Rate: The percentage of income that is saved, can be gross or net of taxes.
• SEP IRA (Simplified Employee Pension IRA): A retirement plan for self-employed individuals and small business owners.
• Simple IRA: A retirement plan for small businesses, similar to a 401(k) but with simpler rules.
• Social Security: A government program providing benefits to retired workers, their spouses, and dependents.
• Solo 401(k): A retirement savings plan designed for self-employed individuals and business owners with no employees other than a spouse. It allows for both employee and employer contributions, enabling higher contribution limits compared to other options such as SEP or SIMPLE IRAs while generally costing less than a normal 401(k) plan.
• Tax-Deferred: Income or investment gains that are not taxed until a later date.
• Tax-Exempt: Income or investment gains that are not taxed.
• Traditional/Rollover IRA: An Individual Retirement Account that allows pre-tax contributions and tax-deferred growth. A Rollover IRA is an IRA which was opened to absorb a rollover from another pre-tax retirement account such as a 401(k), 403(b). There is no such thing as a Rollover Roth IRA (don’t ask me why).
• Withdrawal Rate: The percentage of retirement savings withdrawn each year.

Investments:

• Active Investing: An investment strategy that aims to outperform the market or selected index such as the S&P500, Dow Jones Industrial Average, or Russell 2000.
• APR (Annual Percentage Rate): The annual cost of borrowing, expressed as a percentage, which includes both the interest rate and any associated fees or costs.
• Asset Location: Strategically holding different types of investments in different tax-advantaged accounts to minimize taxes.
• Bear Market: A period of declining stock prices, typically a 20% drop or more.
• Brokerage Account: An account at a financial institution for buying and selling investments.
• Buffered ETF: A type of exchange-traded fund (ETF) designed to provide a level of downside protection while still offering potential for market gains.
• Bull Market: A period of rising stock prices.
• Diversification: Spreading investments across different asset classes to reduce risk.
• Dividend: A distribution of a company's earnings to its shareholders. Dividends lower the share price of a company.
• ETF (Exchange-Traded Fund): A basket of securities that trades on an exchange like a stock. It can be purchased any time during open market hours.
• Expense Ratio: The annual fee charged by a mutual fund or ETF.
• Fixed Income: Investments that pay a fixed rate of return, like bonds.
• Index Fund: A mutual fund that tracks a specific market index.
• Investment Horizon: The length of time an investor plans to invest their money.
• Market Volatility: The degree to which market prices fluctuate.
• Mutual Fund: A professionally managed pool of investments. This is very similar to an ETF however Mutuals Funds only trade at the close-of-day price.
• Passive Investing: An investment strategy that aims to match market performance of a specific index such as the S&P500, Dow Jones Industrial Average, or Russell 2000.
• REIT (Real Estate Investment Trust): A company that owns and operates income-producing real estate.
• Recession: A period of significant decline in economic activity across the economy, typically lasting for at least two consecutive quarters. We often see that by the time a recession is officially announced, stocks have already started to rebound.
• Sequence of Returns Risk: The risk that the order or timing of investment returns will negatively impact a retirement portfolio, especially during the early years of retirement.
• Stock: A share of ownership in a company.
• Unit Investment Trust (UIT): A type of investment fund that holds a fixed portfolio of securities for a specific period. Unlike mutual funds, UITs do not actively trade their holdings. Instead, they are held until the trust's termination date, at which point the proceeds are distributed to investors.
• Yield: The income generated by an investment, expressed as a percentage of the investment's price usually not including fees or costs such as APR.

Social Security & Medicare:

• Average Indexed Monthly Earnings (AIME): A calculation used by Social Security to determine a worker's Primary Insurance Amount (PIA). It is derived by taking a worker's highest-earning 35 years of indexed wages, adjusting for inflation, summing them, and then dividing by the total number of months in those years.
• Cost of Living Adjustment (COLA): Annual adjustment to Social Security benefits to account for inflation. This adjust begins at age 62, regardless of whether the individual has started taking benefits or not.
• Delayed Retirement Credits: Increased Social Security benefits for delaying claiming past full retirement age.
• Full Retirement Age (FRA): The age at which full Social Security benefits are received.
• Medicare Advantage: Medicare health plans offered by private companies that contract with Medicare to provide Part A and Part B benefits, and sometimes additional benefits like vision or dental coverage. Also known as Part C.
• Medicare Part A, B, C, D: Part A covers hospital stays; Part B covers doctor visits; Part C (Advantage) combines A and B; Part D covers prescriptions.
• Medigap: Supplemental insurance that helps pay for some costs that Original Medicare doesn't cover. You’ll often hear these as other Letters, i.e. Medicare Part G, F, or N.
• Primary Insurance Amount (PIA): The monthly Social Security benefit a person is entitled to receive at their full retirement age (FRA), based on their lifetime earnings history and calculated using a formula that applies weighted percentages to different portions of their average indexed monthly earnings (AIME).
• Social Security Disability Insurance (SSDI): A program that provides benefits to workers who become disabled and are unable to work, based on their work history and contributions to Social Security.
• Supplemental Security Income (SSI): A program that provides financial assistance to individuals who are disabled, blind, or elderly and have limited income and resources. Unlike SSDI, SSI is not based on work history but rather financial need.
• Spousal Benefits: Social Security benefits based on a spouse's work record.
• Survivor Benefits: Social Security benefits for family members of a deceased worker.
• WEP/GPO (Windfall Elimination Provision/Government Pension Offset): Adjustments to Social Security benefits for those receiving pensions from government employment not covered by Social Security. This was recently repealed by Congress on 01/05/2025 as part of the Social Security Fairness Act.

Estate Planning & Legal:

• Advance Healthcare Directive: A legal document outlining healthcare wishes if one becomes incapacitated.
• CRAT (Charitable Remainder Annuity Trust):  A type of charitable trust that provides the donor with fixed, annual income for a set period or for the donor's lifetime. After the specified time or upon the donor's death, the remaining assets in the trust are donated to a designated charity.
• Durable Power of Attorney: A legal document authorizing someone to act on another's behalf. Not to be confused with a springing POA. A springing POA is typically only in force after the principal becomes incapacitated.
• Estate Tax: A tax on the transfer of property upon death. Note that estate tax rates are much more compacted than Single or MFJ with the highest marginal bracket starting at only $15,650 for Trusts but $751,600 for MFJ couples (2025).
• Executor: The person named in a will to manage the estate. This is called several things depending on the state. For example, Indiana refers to this as the Personal Representative.
• Generation-Skipping Transfer Tax (GSTT): A tax on transfers to grandchildren or more remote generations.
• Gift Tax: A tax on gifts exceeding a certain amount.
• Grantor Retained Annuity Trust (GRAT): A trust where the grantor receives an annuity for a set period, with the remainder passing to beneficiaries.
• Guardianship: Legal responsibility for the care of a minor or incapacitated person.
• Intentionally Defective Grantor Trust (IDGT): A trust designed to be included in the grantor's estate for tax purposes but not included in the beneficiary's estate.
• Irrevocable Life Insurance Trust (ILIT): A trust that owns a life insurance policy.
• Living Trust: A trust created during a person's lifetime.
• Portability: Allows a surviving spouse to use their deceased spouse's unused estate tax exemption (as of 2025 - $13.99M per person)
• Probate: The legal process of administering a will. Assets with beneficiaries on file & trusts generally avoid probate.
• QTIP Trust (Qualified Terminable Interest Property Trust): A trust that allows assets to pass to a surviving spouse but preserves control over them for the original spouse's chosen beneficiaries after the surviving spouse’s death.
• Revocable trust is a type of trust that can be altered, amended, or revoked by the grantor (the person who created the trust) at any time during their lifetime.
• Special Needs Trust: A trust for individuals with disabilities, preserving their eligibility for benefits.
• Trust: A legal arrangement where assets are held for the benefit of another.
• Trustor/Grantor: The person who creates a trust.
• Will: A legal document outlining how assets should be distributed after death.

Tax Planning:

• 1099: The most common forms of the 1099 tax form we see retirees have includes the 1099-INT for interest, 1099-DIV for dividends, 1099-R for distributions from retirement accounts, 1099-B for taxable brokerage accounts, and the SSA-1099 for Social Security benefits.
• Alternative Minimum Tax (AMT): A parallel tax system ensuring high-income earners pay at least a minimum amount of tax. AMT most commonly arises due to stock options.
• Backdoor Roth IRA: A way to convert traditional IRA funds to a Roth IRA, even if income limits prevent direct Roth IRA contributions. You will not find the term Backdoor Roth in IRS tax code. This is done through non-deductible traditional IRA contributions that are converted to Roth IRA. Be aware of the pro-rata rule and other various components of this strategy.
• Capital Gains Tax: A tax on profits from selling capital assets.
• Deductions: Expenses that can be subtracted from income to reduce taxable income.
• Donor-Advised Fund (DAF): A charitable giving vehicle that allows donors to make a charitable contribution, receive an immediate tax deduction, and then recommend grants to charities over time.
• Estimated Taxes: Taxes paid on income not subject to withholding.
• Foreign Tax Credit: A credit for taxes paid to a foreign country, reducing U.S. tax liability on foreign income. This credit is only received if the foreign tax is paid from a taxable account, i.e. not an IRA.
• Health Savings Account (HSA): A tax-advantaged savings account for healthcare expenses, available to those with high-deductible health plans.
• Itemized Deductions: Specific expenses that can be deducted from income.
• Net Investment Income Tax (NIIT): A 3.8% tax on certain investment income for high earners.
• Qualified Charitable Distribution (QCD): A direct transfer of funds from an IRA to a charity, counting towards the RMD but not taxed as income.
• Roth Conversion: Converting funds from a traditional IRA to a Roth IRA.
• Standard Deduction: A fixed amount that can be deducted from income.
• Step-Up in Basis: A tax provision that adjusts the cost basis of inherited assets to their value at the date of the owner's death, reducing capital gains taxes for the beneficiaries.
• Tax Bracket: The range of income subject to a specific tax rate.
• Tax Credit: A direct reduction of taxes owed.
• Tax-Loss Harvesting: Selling investments at a loss to offset current or future capital gains, or to offset up to $3,000 in ordinary income.

Insurance:

• Cash Surrender Value: The amount of money a policyholder receives if they cancel a permanent life insurance policy before death. The amount received above basis may be taxable.
• Disability Insurance: Insurance that replaces income if one becomes disabled.
• Elimination Period: Waiting period in an insurance policy, particularly long-term care or disability insurance, before benefits are paid out. Usually 90 or 180 days, the shorter the elimination period the higher the premium.
• Homeowners Insurance: Insurance that covers damage or loss to a home and its contents.
• Lapse: Termination of an insurance policy due to non-payment of premiums.
• Life Insurance: Insurance that pays a death benefit to beneficiaries upon the insured's death.
• Long-Term Care Insurance: Insurance that helps cover the costs of long-term care services. Services usually are triggered after an insured can no longer do 2 of the 6 Activities of Daily Living (ADLs). See ADLs on pg. 9.
• Term Life Insurance: Life insurance that provides coverage for a specific period of time.  
• Umbrella Insurance: Liability insurance that provides coverage beyond the limits of other policies.
• Universal Life Insurance: A type of life insurance with flexible premiums and death benefits.
• Variable Life Insurance: A type of life insurance that combines life insurance with investment options.
• Whole Life Insurance: A type of life insurance that provides coverage for the entire life of the insured and has a cash value component.  

Aging Related:

• AARP (American Association of Retired Persons): An organization that advocates for the needs of older adults.  
• Activities of Daily Living (ADLs): Basic self-care tasks such as bathing, dressing, eating, toileting, transferring (moving bed to chair or wheelchair to toilet) and mobility.
• Assisted Living Facility (ALF): A facility that provides housing, meals, and assistance with ADLs. 
• Bereavement: The period of mourning after a loss. 
• Continuing Care Retirement Community (CCRC): A community that offers a range of care levels, from independent living to skilled nursing care. 
• Do Not Resuscitate (DNR) Order: A medical order stating that CPR or other life savings measures should not be performed.
• Geriatric Care Manager: A professional who helps older adults and their families with long-term care planning and coordination.
• Home Health Care: Healthcare services provided in a person's home.
• Hospice Care: Care for individuals with a terminal illness.
• Instrumental Activities of Daily Living (IADLs): More complex tasks such as cooking, cleaning, and managing finances.
• Legacy Letters: Letters written to loved ones sharing values, memories, and life lessons.
• Medicaid Planning: Strategies to qualify for Medicaid benefits, often related to long-term care needs.
• National Council on Aging (NCOA): A non-profit organization that promotes the well-being of older adults.
• Palliative Care: Care focused on relieving pain and other symptoms of a serious illness.
• Respite Care: Temporary care for a person with disabilities or chronic illness, providing relief for caregivers.
• Skilled Nursing Facility (SNF): A facility that provides 24-hour nursing care and other medical services.

Cryptocurrency

• Blockchain: A decentralized digital ledger that records transactions across many computers in a way that increases the security and transparency of data.
• Bitcoin (BTC): The first and most widely recognized cryptocurrency, introduced in 2009 by an anonymous entity known as Satoshi Nakamoto.
• Ethereum (ETH): A decentralized platform that enables developers to create and deploy smart contracts and decentralized applications (dApps).
• Smart Contract: A self-executing contract with the terms of the agreement directly written into lines of code, operating on a blockchain.
• Token: A digital asset or unit of value built on top of a blockchain, often representing assets or utilities within a particular project or platform.
• Mining: The process by which new cryptocurrency coins are created and transactions are validated on a blockchain, often requiring specialized hardware and software.
• DeFi (Decentralized Finance): A movement within the cryptocurrency space that aims to recreate traditional financial systems (like lending, borrowing, and trading) using blockchain technology and smart contracts, without intermediaries.
• NFT (Non-Fungible Token): A unique digital asset that represents ownership or proof of authenticity of a specific item or piece of content, usually on the Ethereum blockchain.
• Stablecoin: A cryptocurrency designed to maintain a stable value, typically pegged to a currency like the US dollar (e.g., Tether or USD Coin).