Glossary

Retirement planning has a vocabulary problem. Most of its words were coined by people writing for other people who already knew them, which is fine in a journal and useless in a form you are trying to fill in.

This page is the plain-language version. Every term here also appears behind a ”?” next to the field or number that uses it, so you should rarely need to come looking. If you did come looking, the term you want is in the contents on the right.

Money and inflation

Inflation

Inflation is how much prices rise each year. The Consumer Price Index, or CPI, is the official measure of it, published by national statistics offices.

Every figure in your plan accounts for inflation. This matters more than it sounds: at 3% a year, prices double in roughly 24 years, so a pension that does not rise with them buys half as much by the time you are 90 as it did at 65.

The model does not assume one fixed inflation rate forever. It moves between calm and high-inflation periods, because that is what inflation actually does. The mechanics are in the technical reference.

Today’s money

A figure in today’s money is adjusted so you can compare it to prices you know right now. The same amount before inflation is the raw future number: it looks much bigger, and it buys the same.

A plan that ends with 4.2 million before inflation, forty years out, may be worth about 1.3 million in today’s money. The first number sounds like wealth. The second is the one you can plan with, so it is the one shown by default. Anywhere a figure is not in today’s money, the app says so.

Before and after tax

Before tax is the amount your pension is worth on paper. After tax is what reaches your account once tax has come out, and it is the only one your plan can actually spend.

Almost every official pension tool reports the before-tax figure, because that is the number the pension system itself works in. A handful report the after-tax figure instead: the Dutch overview gives only the after-tax amount, and the Austrian, French, Swedish and New Zealand tools give both. So the two are not interchangeable, and which one you are looking at depends on which country’s tool you opened.

That is why the retirement-income step asks. Entering a before-tax figure and letting it be treated as spendable is the single easiest way to overstate your income, and the gap is not small: in Germany it runs to somewhere between 15% and 23% of the amount on the statement.

Kinds of account

Retirement accounts differ in when the tax is taken. That is the whole distinction, and it matters more to a plan than any tax rate does.

• Taxed when you take it out. Nothing is taxed while the money sits there, for decades. Then the whole withdrawal counts as income, because none of it has ever been taxed. A US 401(k) or traditional IRA, a British pension, a Canadian RRSP.
• Taxed on the way in, never again. You paid tax before the money went in, it grows untaxed, and taking it out is not a tax event at all. A Roth account, an ISA, a TFSA. In the United States this does more than save the rate: money coming out of a Roth is invisible to the rest of your tax return, so it cannot drag your state pension into tax or push your investment profit into a higher band.
• An ordinary account. Dividends and interest are taxed each year whether you spend them or not, and when you sell, the profit is taxed but your original money is not.

Which one your savings sit in can change the tax on identical spending from nothing at all to a tenth of it. That is why we ask, rather than assuming: there is no typical answer to assume. Rough shares are enough, and your statements will say which account is which.

Not every country has all three. Germany, for instance, has no tax-free investment account of this kind, and its tax-advantaged retirement products pay out as a monthly income rather than a pot you draw down, so they belong with your pensions instead.

Tax thresholds over time

Tax bands are written in money: a rate applies up to some amount, then a higher rate above it. Over a thirty-year plan, whether those amounts keep up with prices changes the answer more than most of the rates do.

If the thresholds rise with prices, the same real income keeps paying the same share of tax forever. If they stay put, prices climb past them, and each year a little more of your income is taxed at a higher rate even though it buys exactly what it used to.

Most countries move most of their thresholds most years. A few amounts are deliberately frozen and stay frozen: the income levels at which American Social Security starts being taxed have not moved since the 1980s and are not designed to.

Some freezes have an end date written into the law, and we follow it. The United Kingdom has held its personal allowance still since 2021, but the freeze runs out in April 2031, and the duty to raise it with prices each year comes back on its own once it does. So a British plan shows the allowance standing still until 2031 and tracking prices after that.

That is what the law says today, and it is worth knowing that these freezes have been extended twice already. If you want to plan on it happening again, the detailed view has a setting for thresholds that never move, and for a British plan that is exactly the question it answers.

How a pension rises

Whether your pension keeps up with prices. The bullets below are the three choices on the retirement-income step, in the same words the buttons use.

• With inflation means it rises by whatever prices rise, every year, and holds its value for life. Most state pensions work this way.
• With inflation, capped means it rises with prices but never by more than a limit you set. It holds its value in calm years and falls behind in high-inflation ones, and it never catches back up. Common in workplace schemes.
• Fixed increase means it rises by the same set amount every year regardless of prices. Whether it holds its value depends entirely on how that amount compares to inflation.

Whichever you pick, the model uprates the pension in full with inflation between now and the age it starts. The rule you choose applies from that age onward.

The stakes are larger than they look. At the 2.5% average inflation this model assumes, a pension that never rises would buy about 48% of what it buys today after thirty years: the same cash, roughly half the groceries. It is one of the highest-leverage numbers you will enter. If you are unsure which applies, check your pension statement for the words “index-linked” or a stated yearly increase.

The formulas behind each option are in §10 Income.

Growth above inflation

This is how fast an amount grows beyond rising prices, sometimes called real growth.

Setting 1% means it gains 1% in buying power each year, which is roughly what a salary doing slightly better than inflation looks like. Setting 0% means it keeps pace with prices and no more. The figure is not the raw percentage on your payslip: if prices rise 3% and your salary rises 4%, the growth above inflation is 1%.

Your plan’s inputs

Your mix

How your savings are split across stocks, bonds and cash. You set stocks and cash; bonds get whatever is left, so the three always add up.

More stocks means higher expected growth and bigger swings on the way there. Typical mixes run from about 30% stocks (cautious) to 85% (growth-seeking); the classic retirement default is 60% stocks and 40% bonds.

Expected annual return

The average yearly return you expect on the whole portfolio, before taking inflation out. It starts at the long-run historical blend for your mix.

Changing it scales the stocks, bonds and cash returns together, keeping stocks above bonds above cash. The detailed section lets you set each one separately instead.

Returns per asset

The average yearly return you expect from stocks, bonds and cash separately, before taking inflation out. Prefilled with long-run historical averages.

The single expected-return number is these three blended at your mix, so editing either keeps the other in step.

Dividend yield

The part of your stock return paid out as cash dividends each year. Your expected stock return already contains it; this setting only says how much of that return arrives as dividends rather than as growth in the price.

It matters for tax. In countries that tax dividends every year, the dividend part of your return is charged in your ordinary investment account as you go, while the growth part is charged only when you sell. Prefilled with the yield of a broad global stock index. Set it to 0 for funds that keep the income inside the fund instead of paying it out.

Qualified dividends

A United States distinction. Most dividends from broad index funds are qualified, which means they are taxed at the lower capital gains rate instead of the ordinary income rate. Common index funds run between roughly 75 and 97 percent qualified; real estate funds pay mostly non-qualified dividends.

Only the split between the two rates moves when you change this. Your total dividend income, and the income the health insurance credit looks at, stay the same.

How much market risk

A shortcut for the mix of stocks, bonds and cash you hold. More stocks means higher expected growth and bigger swings on the way there.

The mix is set directly on the money step: stocks and cash, with bonds taking the rest. If you know your actual allocation, enter it rather than guessing a label that sounds like you.

Glide path

A glide path shifts your investment mix gradually as you age, moving out of stocks and into bonds and cash.

The reasoning is that a bad market matters far more when you are about to start spending than when you have twenty years to recover. Turn the glide path off and your mix stays fixed for the whole plan, which is a legitimate choice and one that some research supports. Full detail in the technical reference.

Fund fees

The annual fee your funds charge, taken as a share of your balance.

It comes out whether markets rise or fall, so over decades it compounds against you. Around 0.2% is typical for index funds and 1.5% or more for actively managed ones. On a thirty-year plan that gap can cost more than a year of retirement.

Tax on investment gains

Tax on the profit when you sell investments to fund your spending.

You do not enter a rate for this. Your plan works it out each year from your country’s own rules, using what you actually hold and what you actually take out, and only the profit is taxed rather than the money you originally put in. What each country covers, and what it does not, is set out on the tax page.

Withdrawal order

Which of your accounts the plan spends from first. The order changes how much tax you pay, not how much you can spend: drawing from the ordinary account first keeps sheltered money growing untaxed for longer, which is the usual advice.

The default draws a bit of each account every year, in proportion to your split, which applies no strategy at all. Any order you pick is priced by the same tax rules, year by year, against what each account actually still holds.

Benchmark plan

For a United States plan that retires before 65: the second-cheapest mid-tier health plan where you live, which the government uses as the yardstick for help with premiums. Your help is that plan’s price minus a set share of your income, whatever plan you actually buy, and it stops entirely one dollar above four times the poverty line.

The price varies a lot by state, roughly five to one, so the prefilled national average is only a starting point. Look up your own figure on healthcare.gov and enter it; enter 0 if you will not buy your own cover before Medicare.

Roth conversion

For a United States plan: moving money from a 401(k) or traditional IRA into a Roth account. The amount you move counts as income and is taxed in the year it moves, and in return it is never taxed again and stays invisible to every income test later. It cannot be undone.

Two rules shape the strategy. The move itself carries no early-withdrawal charge at any age, but money moved this way needs five years in the Roth before it comes out free of that charge if you are under the access age. And the year’s required minimum withdrawal, where one applies, has to come out before anything can move.

Essential floor

The minimum you have to spend each year to keep the lights on: essentials, housing and healthcare.

This is the line that defines failure. A future counts as failed only if it cannot fund this level, not if you had to give up holidays. Discretionary spending gets cut first, in a set order, before anything counts as a failure.

Inheritance goal

An amount you want to leave behind when you die, in today’s money.

Setting it makes the plan treat that money as off-limits rather than as balance you could spend. Leave it at zero if you have no such goal; a non-zero value will lower your sustainable spending, which is the honest trade.

Property and income

Costs of selling

Selling a home costs money: agent fees, transfer taxes, repairs to get it saleable, and the discount you accept for a quicker sale.

This is the share of the price you lose to all of it. At 8%, a 300,000 home nets you 276,000. It matters because the model can sell the home as a last resort, and pretending that sale is free would overstate how much of a safety net the house really is.

Occupancy

The share of the year a rental property actually earns rent.

90% means it sits empty roughly five weeks a year between tenants. Setting it to 100% assumes a tenant is always in place, which is optimistic across a thirty-year plan.

Upkeep

Yearly upkeep on a property, as a share of what the property is worth.

1% on a 300,000 home is 3,000 a year for repairs and replacements. It is a long-run average rather than a bill that arrives every year: nothing happens for six years, then the roof goes.

Survivor share

When one partner dies, most pensions keep paying the survivor only a fraction of the original amount. This is that fraction.

A 60% survivor share means the survivor keeps 60 of every 100 the pension used to pay. It is easy to overlook and expensive to get wrong, because household expenses do not fall anywhere near as fast as household income does.

Spending in retirement

Withdrawal rule

A withdrawal rule sets a ceiling on how much you can take out of the portfolio in a year.

It does not decide your spending. Your expense plan does that. The rule only bites when what you planned to spend is more than the portfolio can safely give, at which point spending gets cut in priority order. The rules available are compared in the technical reference.

First-year withdrawal

The share of your portfolio you take out in the first year of retirement.

At 4%, a portfolio of 500,000 gives you 20,000 to spend. In later years that amount rises with inflation rather than being worked out again from the new balance, which is what makes it predictable and also what makes it risky if markets fall early.

Withdrawals that flex

A rule that lets the amount you can take out move with your balance and your age. Good markets raise the ceiling, bad markets lower it.

It makes running out of money very unlikely, because you never keep drawing a fixed sum from a shrinking pot. The cost is an income that varies year to year, which is harder to live on. Known in the literature as variable percentage withdrawal, or VPW.

How safe you want the plan

The share of simulated futures that have to succeed before a spending level counts as sustainable.

90% means you accept that about one future in ten falls short. Asking for 99% is not free: it will hand you a noticeably smaller number to live on, and the futures it protects against are the rare ones.

Risks the model runs

Simulated futures

Each simulated future is one possible life: one run of market returns, one path for inflation, one lifespan, and whether care was ever needed.

Thousands are run so the pattern you see comes from the odds rather than from luck. No single one of them is a forecast, and the spread across all of them is the actual answer.

Long-term care

Extended help with daily living, at home or in a care facility, usually late in life.

It is the largest expense shock most retirement plans ever face, and the one people leave out. The plan models when it might start, how long it lasts and what it costs, rather than assuming it never happens.

Job-loss risk

The chance of an unplanned spell out of work before you retire.

While it lasts, your income stops and your savings have to cover the gap. It matters most if you still have many working years ahead, and barely at all if you are two years from retiring.

Reading your results

Chance your money lasts

Out of thousands of simulated futures, the share in which your money outlasts you.

85% means roughly 15 futures in 100 ran short. It is a count of outcomes, not a promise about yours, and it should not be read to two decimal places. A plan at 85% and a plan at 87% are the same plan.

The range of outcomes

The band on the chart shows the spread of outcomes across every simulated future, not one prediction.

The line through the middle is the median: half of futures did better, half did worse. How wide the band is tells you how uncertain the answer really is, which is information a single number throws away.

What’s left at the end

What remains in the portfolio when the plan ends.

It is shown as a range because it depends enormously on how markets happened to behave. A very large figure is not automatically good news: it often means you could safely have spent more while you were alive to enjoy it.

Years funded

In the futures where the money did run out, how many years the plan covered before it did.

It turns a bare failure count into something you can judge. Running dry at 92 is a very different problem from running dry at 74, and the success percentage alone cannot tell them apart.

What’s most likely to break your plan

Your inputs, ranked by how much each one swings your outcome.

It is worked out on your specific plan rather than on averages, so it tells you which single number is worth getting right. If your top driver is the retirement age, more precision on your fund fees will not help you. The variance decomposition behind it uses Sobol indices, described in the technical reference.

What-if scenarios

Variations on your plan run alongside it: retiring later, saving more, spending less, taking less risk.

Each one is a full re-run rather than a rule of thumb, so the change you see is the real effect on your chances. They are chosen based on what actually drives your plan, which is why two people see different scenarios.