The Accumulated Benefit Obligation (ABO) is a company's pension obligation that accounts for the current value of benefits earned by participants up to a given date, calculated using current salaries and service years, without considering future salary increases. This financial metric is critical in assessing the financial health and obligations of a company's defined benefit pension plan.
An Additional Voluntary Contribution (AVC) allows employees to make extra contributions to their pension schemes over and above the standard contributions from their employer or themselves. This helps in enhancing their pension benefits upon retirement.
Annuitize refers to the process of converting the accumulated capital in an annuity into a series of periodic payments. These payments can be for a fixed amount, over a fixed period, or for the lifetime of one or more annuitants, ensuring a guaranteed income stream that cannot be outlived.
An annuity due is a type of annuity where payments are made at the beginning of each period, as opposed to an ordinary annuity where payments are made at the end of each period.
Annuity income refers to the series of payments made at fixed intervals over a period of time, typically used as a stable source of cash flow during retirement.
A type of hybrid pension plan in which each participant's benefit is stated as a hypothetical account balance, increased with pay credits for additional service and interest credits to reflect the passage of time.
U.S. Treasury issues sold at a deep discount from face value. A zero-coupon security that pays no interest during its lifetime but returns the full face value at maturity. Ideal for retirement or education planning and cannot be called.
A contributory pension is a type of pension scheme where both the employee and the employer contribute to the employee's pension fund.
A contributory pension plan is a retirement savings plan in which both the employee and employer contribute funds. These plans are designed to provide financial security to employees after retirement by pooling resources from both parties.
A DB Scheme, or Defined-Benefit Pension Scheme, promises a specified pension payment, lump-sum, or combination thereof on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service, and age.
A deferred annuity is an annuity in which payments do not start at once but either at a specified later date or when the policyholder reaches a specified age.
Deferred compensation is a tax-advantaged plan under which an employee postpones a portion of their salary in exchange for the employer's promise to pay this salary in the future, usually to achieve tax benefits and retirement planning.
A deferred group annuity is a retirement income product where income payments start at a future date and continue for life, funded through annual contributions that purchase single-premium deferred annuities.
Deferred retirement refers to the act of postponing retirement beyond the normal retirement age, which typically does not result in an increase in monthly retirement income when the employee actually retires.
A type of annuity contract where payments to the annuitant are postponed until a specified number of periods have elapsed, or until the annuitant reaches a certain age. Also known as a deferred annuity.
Early retirement refers to the act of leaving one's job before reaching the normal retirement age, and meeting certain minimum requirements related to age and years of service. This often results in a reduction of the monthly retirement benefit received.
The idiom 'feather one's nest' means to make a comfortable and secure living place, often for retirement. It can also imply misappropriating funds for personal benefit.
A financial plan is a comprehensive strategy designed to help individuals or businesses achieve specific financial goals, both short and long-term. Financial planning covers aspects such as budgeting, investments, savings, taxes, and retirement planning.
A financial planner is a professional who analyzes personal financial circumstances and prepares a program to meet financial needs and objectives, equipped with knowledge in several domains including estate planning, retirement planning, and investments.
A fixed annuity is an investment contract sold by an insurance company that guarantees fixed payments, either for life or for a specified period, to an annuitant. It provides a stable and predictable income stream, making it a popular choice for retirees seeking financial security.
Full retirement age is the age at which a person may first become entitled to full or unreduced retirement benefits. It varies depending on the year of birth, and understanding this concept is crucial for effective retirement planning.
The age at which a Social Security beneficiary can receive full Social Security retirement benefits. It is defined by the Social Security Act of 1935 and its amendments, particularly the 1983 amendment which adjusted full retirement ages based on date of birth.
A funded pension scheme is a retirement plan that pays benefits to retirees from a fund that is actively invested in securities. The returns generated by this fund are distributed as pensions to its members.
A General Retirement System encompasses all mechanisms and financial arrangements designed to provide individuals with income or benefits during their retirement years. These systems often include pensions, social security, and personal retirement savings plans.
A pension plan funding instrument in which contributions paid by an employer are deposited to accumulate at interest, and an immediate annuity is purchased upon retirement for the employee. The benefit is determined by a formula and the investment earnings on funds left to accumulate at interest.
Home equity conversion involves the process of liquidating all or a portion of the equity in one's home. This can be achieved through various financial products aimed at providing the homeowner with cash while retaining the right to live in the home.
A hybrid annuity is a contract offered by an insurance company that combines the benefits of both fixed and variable annuities, offering a balance between guaranteed returns and potential for higher earnings.
A Hybrid Pension Plan is a general term encompassing pension plans that incorporate elements of both defined-contribution and defined-benefit plans, offering versatility in retirement planning.
A provision of the IRA law enabling persons receiving lump-sum payments from their company's pension or profit-sharing plan due to retirement or other termination of employment to roll the amount over, tax-free, into an IRA investment plan within 60 days.
An annuity that provides payments to two or more beneficiaries, typically a husband and wife. When one of the annuitants passes away, the survivor continues to receive annuity payments; however, the payments made to the deceased are not transferred to the survivor.
An annuity that makes a guaranteed fixed payment for the rest of the life of the annuitant. After the annuitant dies, the beneficiaries receive no further payments.
A payment of the entire amount of retirement benefits due at one time rather than in installments.
Normal cost represents the portion of the economic cost of a participant's anticipated pension benefits allocated to the current plan year, usually distinct from accounting accrual cost or the cash outlay required in that year.
The earliest age at which an employee can retire without a penalty reduction in pension benefits, typically after meeting minimum age and service requirements. Historically, set at 65 years but varies by pension plans.
An occupational pension scheme, also known as superannuation or workplace pension, is a pension plan designed for employees within a specific trade, profession, or company, providing retirement benefits through either insured or self-administered schemes.
A pay-as-you-go pension system, also known as an unfunded pension system, finances state retirement benefits through contributions from current workers rather than investing contributions for future benefits.
A Pension Equity Plan (PEP) is a type of defined-benefit pension plan design in which a participant's benefit is stated as a lump sum based on the participant's age, service, and average pay, with the average pay usually based on only the final few years of employment.
A Pension Freeze refers to the situation when a pension plan sponsor decides to eliminate future pension accruals for plan participants, although the plan itself remains in existence to pay out already accrued pensions.
A pension plan is a retirement savings program sponsored by an employer that provides its employees with regular income post-retirement. There are various types of pension plans, each with different rules regarding contributions, benefits, and tax treatment.
An obligation recognized by the employer for the future liability to make annuity payments to employees. The reserve is typically a liability when it results from charging a pension expense. However, in a revocable plan, the reserve is considered an appropriation of retained earnings regardless of whether it affects specific assets.
A pension scheme is an arrangement designed to provide a defined class of individuals, known as members, with retirement pensions and often other benefits. It may also extend benefits to dependants of deceased members.
Personal financial planning software assists users in examining revenue and expenses, comparing actual to budget, monitoring assets and liabilities, conducting goal analysis, investment portfolio analysis, tax planning, and retirement planning.
A personal pension scheme is an arrangement where an individual contributes a portion of their salary to a pension provider, like an insurance company or bank, to secure funds for retirement.
A retirement fund is a sum of money specifically reserved by an organization for retiring employees. The investment of retirement funds is increasingly significant in the stock market and is regulated by federal laws such as the Employee Retirement Income Security Act (ERISA) of 1974.
Retirement income refers to the various sources of funds that a retired individual receives, which can include Social Security benefits, pensions, annuities, and investment income. This income is critical for maintaining an individual's lifestyle once they are no longer earning a regular paycheck.
A Self-Directed IRA is an Individual Retirement Account that allows the account holder to actively manage and make investment decisions, distinguishing it from standard IRAs managed by institutions.
The Self-Employment Individuals Retirement Act, commonly known as the Keogh Plan, is a retirement plan designed for self-employed individuals and small business owners, allowing them to save for retirement with tax-deferred contributions.
SERPS is an abbreviation for the State Earnings-Related Pension Scheme, which was a UK government pension scheme designed to provide an additional level of pension income based on an individual's earnings.
The State Earnings-Related Pension Scheme, commonly known as SERPS or the State Second Pension (S2P), was a component of the UK’s state pension system designed to supplement the basic state pension by providing additional benefits based on earnings.
A Stretch IRA is an Individual Retirement Account (IRA) structured to extend the period of tax-deferred earnings beyond the lifetime of the original account holder, potentially benefiting multiple generations.
An investment option where accumulated earnings are not taxed until the investor takes possession of the assets.
A retirement vehicle permitted under Section 403(b) of the U.S. Internal Revenue Code for employees of a public school system or a qualified charitable organization.
A variable annuity is a type of life insurance annuity whose value fluctuates with that of an underlying securities portfolio or other index of performance. It contrasts with a conventional or fixed annuity, whose rate of return is constant.
The entitlement of a pension plan participant to receive full benefits upon reaching the normal retirement age or a reduced benefit upon early retirement, regardless of their employment status with the same employer.
