Glossary

Definitions for terms used across our calculators and guides.

AGI (Adjusted Gross Income)
Total income minus specific deductions such as traditional IRA contributions, student loan interest, and half of self-employment tax. AGI is the starting point for most tax calculations.
Annual Expenses
Total expected spending each year in retirement. Primary driver of how much you need to save.
Annual Savings
Amount contributed to investments each year before retirement.
Bridge Period (Bridge Years)
Time between early retirement and when retirement accounts become fully accessible without restrictions.
Capital Gains Tax
Tax on profits from selling investments in a taxable account. Typically lower than ordinary income tax rates.
COBRA (Consolidated Omnibus Budget Reconciliation Act)
A federal law that lets you continue employer-sponsored health coverage for a limited time after leaving a job. You pay the full premium plus up to 2% administrative fee. Can be used to temporarily continue an FSA.
Current Age
Present age, used to calculate time to retirement.
Current Savings
Total value of investments today.
Early Retirement
Retiring before traditional retirement age (typically before 59½ in the U.S.).
Effective Tax Rate
Average rate of tax paid across total income.
FIRE (Financial Independence, Retire Early)
Strategy focused on saving and investing aggressively to retire earlier than traditional timelines.
Financial Independence
Point where investments can sustainably cover living expenses.
FSA (Flexible Spending Account)
Employer-sponsored account that lets you set aside pre-tax dollars for medical expenses. Subject to use-it-or-lose-it rules — unused funds are generally forfeited at year-end. Cannot be used after retirement.
HDHP (High Deductible Health Plan)
A health insurance plan with a higher deductible than traditional plans. Required to be eligible for a Health Savings Account (HSA).
HSA (Health Savings Account)
Tax-advantaged account for medical expenses: tax-deductible contributions, tax-free growth, tax-free withdrawals for qualified expenses. Only available if enrolled in an HDHP.
Inflation Rate
Rate at which cost of living increases, reducing purchasing power.
Investment Return (%)
Expected annual growth rate of portfolio.
MAGI (Modified Adjusted Gross Income)
AGI plus certain items added back, such as tax-exempt bond interest and excluded foreign income. MAGI is used to determine IRA contribution limits, Roth conversion eligibility, and Medicare IRMAA surcharges.
Marginal Tax Rate
Tax rate applied to the next unit of income.
Penalty-Free Withdrawal
Accessing retirement funds without paying the typical 10% early withdrawal penalty.
Penalty-Free Strategy
Method to access retirement funds early without penalties, e.g. Roth conversion ladders and SEPP withdrawals.
Real Return
Investment return after adjusting for inflation.
Retirement Age
Age at which you plan to stop working and begin withdrawals.
Retirement Horizon
Total number of years retirement savings must last.
RMD (Required Minimum Distribution)
Mandatory withdrawals from traditional IRAs, 401(k)s, and similar accounts starting at age 73 under current U.S. rules (SECURE 2.0). Missing an RMD triggers a 25% excise tax on the shortfall, dropping to 10% if corrected within two years.
Roth Conversion
Moving money from pre-tax account to Roth, paying tax now for tax-free withdrawals later.
Roth Conversion Ladder
Converting funds gradually each year and accessing them penalty-free after five years.
Safe Withdrawal Rate (SWR)
Guideline for annual withdrawal without running out of money, commonly ~4%.
Savings Rate
Percentage of income saved and invested.
Sequence of Returns Risk
Risk that poor market performance early in retirement reduces how long money lasts.
SEPP (72(t) Withdrawals)
Substantially Equal Periodic Payments allowing penalty-free withdrawals before 59½ in a fixed schedule.
Tax Rate (%)
Assumed rate applied to withdrawals in the calculator.
Taxable Account
Investment account with no special tax advantages.
Taxable Income
Income subject to tax after deductions.
Tax-Deferred
Accounts where taxes are paid later upon withdrawal, e.g. Traditional IRA, 401(k).
Tax-Free Growth
Investment growth not taxed when withdrawn, e.g. Roth accounts.
Withdrawal Rate
Percentage of portfolio withdrawn each year.
Withdrawal Strategy
Order and method used to draw income to minimise taxes and penalties.

Key Strategies

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Roth Conversion Ladder

Convert pre-tax savings each year into a Roth account. After five years, each conversion becomes accessible penalty-free.

72(t) / SEPP Withdrawals

Fixed withdrawal schedule based on IRS rules. Allows early access but reduces flexibility.

Rule of 55

Withdraw from employer-sponsored retirement plan penalty-free starting at age 55, if conditions are met.

Taxable-First Strategy

Use taxable investments first to allow retirement accounts more time to grow and optimise taxes.

This glossary is for informational purposes only and does not constitute financial, tax, or investment advice. All calculations and strategies are estimates and should be verified with a qualified professional.