Plain-English Definitions
Retirement and Safe Money Glossary
Short, plain-English definitions of 35 terms that come up when planning for retirement with annuities, CDs and private lending. Each one links to an article or page that goes further. Everything here is general education from Key Financial Group of Florida, Inc., not advice for your situation.
Annuity Terms
Annuity
A contract with an insurance company. You pay in a lump sum or a series of payments, and the company agrees to pay money back to you on the terms in the contract, often as income for a set period or for life.
Fixed annuity
An annuity that credits a rate of interest set by the insurance company rather than one tied to the stock market. The value does not fall when markets fall, and guarantees depend on the claims-paying ability of the issuing company.
Multi-year guaranteed annuity (MYGA)
A type of fixed annuity that locks in one interest rate for a set number of years, much like a CD with an insurance company. At the end of the term you can usually renew, move the money, or take it out.
Fixed indexed annuity
An annuity whose credited interest is linked to the performance of a market index, within limits set by the contract, while the principal is protected from index losses. Its rules for how interest is credited are worth reading closely.
Immediate annuity
An annuity bought with a lump sum that starts paying income right away, usually within a year. A deferred annuity, by contrast, grows first and pays out later.
Surrender charge
A fee for taking out more than the contract allows, or cashing it in, during the early years of an annuity. It usually shrinks each year until the surrender period ends.
Free withdrawal
The amount many annuity contracts let you take out each year without a surrender charge, commonly a modest share of the value. Taxes may still apply to any gain you withdraw.
Income rider
An optional add-on to some annuities that guarantees a stream of income for life under rules set in the contract, often for an added cost. It is separate from the contract's cash value.
Confinement waiver
A feature in some annuity contracts, sometimes called a nursing home waiver, that lets the owner withdraw more without a surrender charge if they move into a qualifying care facility. Terms vary by contract.
Annuitant
The person whose life the annuity's income payments are based on. The annuitant is often, but not always, the same person as the owner.
Beneficiary designation
The named person or people who receive what remains of an account or contract when the owner dies. It generally passes outside a will, so keeping it up to date matters.
Guaranty association
A state organization that protects annuity and insurance policy owners, up to limits set by state law, if an insurance company fails. It is a secondary safety net behind the insurer's own financial strength.
Tax deferral
Growth that is not taxed until you take it out. Annuities generally grow tax deferred, and withdrawals of gain are then taxed as ordinary income.
Savings and CD Terms
Certificate of deposit (CD)
A bank deposit you agree to leave in place for a set term in exchange for a set rate of interest. At an FDIC insured bank it is protected up to the applicable limit.
CD ladder
Splitting savings across several CDs that mature at different times, so some money comes available on a regular schedule instead of being locked up all at once.
Early withdrawal penalty
What a bank charges if you take money out of a CD before it matures, usually stated as a number of months of interest. It is disclosed when the account is opened.
Maturity date
The day a CD's term ends. Many CDs renew automatically after a short grace period unless you tell the bank otherwise.
FDIC insurance limit
The most the Federal Deposit Insurance Corporation protects at one insured bank: two hundred and fifty thousand dollars per depositor, per insured bank, for each account ownership category.
Brokered CD
A CD issued by a bank but bought through a brokerage account rather than directly from the bank. It can often be sold before maturity on a secondary market, where its price can be more or less than you paid.
Money market account
An interest-bearing bank deposit account that lets you reach your money at any time. At an insured bank it carries FDIC insurance, and its rate can change.
Compound interest
Interest earned on earlier interest as well as on the original deposit, so growth builds on itself over time. Interest paid out to you instead does not compound.
Retirement Terms
Required minimum distribution (RMD)
The amount the IRS requires you to withdraw each year from most tax-deferred retirement accounts once you reach a certain age. Missing one can bring a tax penalty.
Rollover
Moving money from one retirement account to another, such as from an old 401(k) to an IRA or an annuity, without it being treated as a withdrawal. Done incorrectly, it can be taxed.
Sequence of returns risk
The danger that market losses early in retirement, while you are also withdrawing, do lasting damage that later gains cannot repair. The order of returns matters, not just the average.
Preservation of principal
Keeping the original amount you saved intact, as opposed to reaching for growth that puts it at risk. It becomes a higher priority for many people after sixty.
Safe money
Savings kept in places where the principal is not exposed to market losses, such as FDIC insured accounts and fixed annuities. Its job is stability and predictability rather than growth.
Bucket strategy
Dividing retirement savings by when you will need them: near-term money kept safe and reachable, middle-distance money in stable products, and longer-term money allowed to grow.
Inflation risk
The chance that rising prices slowly reduce what your savings and fixed income can buy, even when the dollar amount never falls.
Liquidity
How quickly and cheaply you can turn something into cash. A savings account is highly liquid; a CD, an annuity in its surrender period, or a private loan is much less so.
Private Lending Terms
Private Lending
Lending money to an established residential real estate developer at a fixed rate for a fixed term, secured by real estate. It is not liquid during the term, not FDIC insured, real estate values and rates at renewal can change, and past performance does not indicate future results.
Deed of trust
A recorded document that ties a loan to a specific property, giving the lender a claim on that property if the loan is not repaid. It works much like a mortgage.
Promissory note
A written, signed promise by a borrower to repay a loan on stated terms, including the amount, the interest and the schedule.
Lien position
The order in which lenders with a claim on the same property are repaid if it is sold or liquidated. A first, or primary, lien is repaid before a second.
Third-party escrow
An independent company that holds and moves funds and documents between the parties to a transaction, so money does not pass directly from one party to the other.
Title company
A company that checks who legally owns a property and what claims exist on it, and often records the documents that secure a loan.
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