Early Retirement Planning Glossary

A retirement withdrawal guideline suggesting 4% of the initial portfolio can be withdrawn annually, adjusted for inflation, with high probability of lasting 30 years.

The distribution of investments across asset classes such as stocks, bonds, real estate, and cash to balance risk and return.

A semi-retirement approach where investments cover most expenses while part-time work provides health insurance or supplemental income.

A strategy of temporarily increasing bond allocation around the retirement date to mitigate sequence of returns risk.

The point at which existing invested savings will grow through compound returns alone to fund a traditional retirement without further contributions.

Interest earned on both the initial principal and previously accumulated interest, causing exponential wealth growth over time.

The percentage of a retirement portfolio withdrawn annually to fund living expenses.

The annual fee charged by an investment fund, expressed as a percentage of assets under management.

A FIRE variant targeting a higher annual spending level in retirement, typically above $100,000, requiring a larger portfolio.

The state of having sufficient investment income or assets to cover all living expenses without requiring active employment.

The total portfolio value needed to sustain annual expenses indefinitely, commonly calculated as 25 times annual expenses.

Relocating to a lower cost-of-living area to reduce expenses and accelerate the path to financial independence.

A mutual fund or ETF designed to replicate the performance of a specific market index, offering broad diversification at low cost.

A FIRE variant involving retirement on minimal annual spending, typically under $40,000 per year.

A federal health insurance program for people aged 65 and older, representing the point at which healthcare costs decrease significantly for retirees.

Mandatory annual withdrawals from tax-deferred retirement accounts beginning at age 73 under current law.

The transfer of funds from a traditional IRA or 401(k) to a Roth IRA, paying income taxes on the converted amount in exchange for future tax-free growth and withdrawals.

A retirement account funded with after-tax dollars that provides tax-free growth and tax-free qualified withdrawals.

An IRS provision allowing penalty-free withdrawals from retirement accounts before age 59.5 through Substantially Equal Periodic Payments.

A formula estimating the number of years for an investment to double: divide 72 by the annual rate of return.

The maximum annual withdrawal percentage from a retirement portfolio that is unlikely to result in portfolio depletion over a specified time horizon.

The percentage of after-tax income that is saved and invested, the most influential variable in determining time to financial independence.

A series of equal annual withdrawals from a retirement account, calculated using IRS-approved methods, that exempts the withdrawals from the 10% early withdrawal penalty.

The risk that the order of investment returns, particularly poor returns early in retirement, will cause premature portfolio depletion.

A 1998 academic study by Cooley, Hubbard, and Walz that analyzed historical data to determine sustainable portfolio withdrawal rates over 30-year periods.