Vocabulary

Pension Plan – A type of retirement plan where an employer and/or employee contribute to a pool of funds set aside for an employee's future benefit.

Defined Benefit Plan – A type of pension plan in which an employer/sponsor promises a specified pension payment, lump-sum or combination thereof on retirement.

Defined Contribution Plan – A type of retirement plan in which the employer, employee or both make contributions on a regular basis.

401(k) Plan – A retirement savings plan sponsored by an employer that allows workers to save and invest a piece of their paycheck before taxes are taken out.

Annuity – A financial product that pays out a fixed stream of payments to an individual, primarily used as an income stream for retirees.

Vesting – The process by which a retirement plan participant accrues non-forfeitable rights over employer-provided contributions made to the participant's retirement plan account.

Individual Retirement Account (IRA) – A tax-advantaged investing tool that individuals use to earmark funds for retirement savings.

Roth IRA – A special type of retirement plan under US law that is generally not taxed, provided certain conditions are met.

Employer Match – A type of contribution an employer chooses to make to their employee's employer-sponsored retirement plan.

Profit-Sharing Plan – A plan that gives employees a share in the profits of the company.

Employee Stock Ownership Plan (ESOP) – A program that provides a company's workforce with an ownership interest in the company.

Retirement Age – The age at which a person is expected to cease work and become eligible for retirement benefits.

Social Security – A program that uses public funds to provide a degree of economic security for the public.

Pension Fund – A type of investment that pools capital from individuals and/or organizations to provide retirement income.

Early Retirement – The action of leaving one's job and becoming a retiree before the standard age.

Plan Sponsor – The entity that establishes a retirement plan for the benefit of the organization's employees.

Fund Manager – The individual, or entity, responsible for implementing a fund's investing strategy and managing its trading activities.

Contributions – The money that an individual or employer deposits into a retirement or savings account.

Distribution – The payment of dividends, capital gains, or returns of capital to a fund's shareholders.

Compound Interest – The addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest.

Rollover – The process of moving a retirement account from one custodian to another.

Asset Allocation – The implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio.

Portfolio – A grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents.

Risk Tolerance – The degree of variability in investment returns that an investor is willing to withstand.

Income Funds – A type of mutual fund that emphasizes current income, either on a monthly or quarterly basis, as opposed to capital appreciation.

Bonds – A fixed income instrument that represents a loan made by an investor to a borrower.

Stocks – A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.

Mutual Funds – An investment vehicle made up of a pool of money collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and other assets.

Diversification – The practice of spreading investments among different securities to reduce risk.

Tax-Deferred – The investment earnings such as interest, dividends or capital gains that accumulate tax-free until the investor takes constructive receipt of the gains.