RICP flashcards
RICP · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Sequence-of-returns risk
- Risk that poor investment returns early in retirement, combined with withdrawals, permanently reduce portfolio value even if long-run average returns meet the plan.
- Safe withdrawal rate
- An initial withdrawal percentage, commonly 4%, from a diversified portfolio, adjusted annually for inflation, with a high historical probability of lasting 30 years.
- Retirement income gap
- The shortfall between projected annual retirement expenses and guaranteed lifetime income such as Social Security, defined-benefit pensions, and annuitized payments.
- Floor-and-upside strategy
- A strategy that covers essential expenses with guaranteed income sources and invests remaining assets for growth and discretionary spending.
- Bucket strategy
- Time-segmented asset pools: short-term cash for near spending, intermediate bonds for medium needs, and equities for long-term growth, refilled periodically from gains.
- Fixed-percentage withdrawal
- A withdrawal method taking a constant percentage of the portfolio's current value each year, so income fluctuates with markets and principal is never fully exhausted.
- Dynamic withdrawal rules
- Withdrawal adjustments based on portfolio performance and preset guardrails, raising income after strong returns and cutting after losses to preserve capital.
- Annuitization
- Converting a lump sum into a guaranteed lifetime income stream, transferring longevity and market risk to an insurer in exchange for reduced liquidity and legacy value.
- Mortality credits
- Additional payout from pooling longevity risk; funds of participants who die early are redistributed to survivors, so payouts rise with age at purchase.
- Replacement ratio
- Retirement income needed as a percentage of pre-retirement gross income, commonly 70-80%, lower for high earners and higher for low earners.
- Longevity risk
- The risk of outliving financial assets; mitigated by delaying Social Security, purchasing annuities, and using conservative withdrawal rates.
- Full retirement age
- The age at which unreduced Social Security benefits begin; 67 for people born in 1960 or later, with earlier claiming permanently reducing benefits.
- Delayed retirement credits
- An 8% annual increase in Social Security benefits for claiming after full retirement age, available until age 70, when benefits reach their maximum.
- Social Security earnings test
- Before FRA, $1 of benefits is withheld for every $2 earned above the annual limit; in the FRA year, $1 per $3 above a higher limit.
- Provisional income
- Adjusted gross income plus tax-exempt interest plus 50% of Social Security benefits; used to determine how much of the benefit is taxable.
- Required minimum distribution
- The minimum annual withdrawal from tax-deferred retirement accounts beginning at age 73, or 75 for those born in 1960 or later, based on IRS tables.
- Qualified charitable distribution
- A direct transfer from an IRA to a charity at age 70½ or older, up to $105,000 annually, excluded from income and counted toward the RMD.
- HECM reverse mortgage
- An FHA-insured loan for homeowners 62 or older; it is non-recourse, requires no monthly payments, and comes due on death, sale, or permanent move.
- Joint and survivor pension
- A defined-benefit payout continuing to a surviving spouse at 50%, 75%, or 100% of the participant's benefit, in exchange for a reduced initial payment.
- PBGC guarantee
- Federal insurance for private defined-benefit pensions that pays vested benefits up to statutory limits when an underfunded plan terminates.
- Medicare IRMAA
- An income-related monthly adjustment added to Medicare Part B and Part D premiums, based on modified adjusted gross income from two years earlier.
- Funded ratio
- Present value of retirement resources, including assets and guaranteed income, divided by the present value of planned expenses; above 1.0 indicates a surplus.
- Withdrawal sequencing
- The order in which taxable, tax-deferred, and tax-free accounts are tapped, chosen to minimize lifetime taxes and manage marginal tax brackets.
- Tax torpedo
- When Social Security benefits become taxable, each extra dollar of income can push up to 85 cents of benefits into income, sharply raising marginal rates.
- Roth conversion
- Moving tax-deferred money into a Roth IRA and paying income tax now, producing tax-free growth, no owner RMDs, and tax-free distributions to heirs.
- Rebalancing in retirement
- Restoring the target asset allocation after market moves, preferably using withdrawals, dividends, and new money first to avoid realizing capital gains.
- Guardrail trigger
- A preset portfolio or withdrawal threshold that, when breached, prompts a planned spending increase or cut to keep the retirement plan on track.
- Plan trigger event
- A life change such as death, divorce, illness, job loss, or tax-law change that requires revisiting and possibly revising the retirement income plan.
- Annual retirement review
- A yearly check of spending, portfolio value, withdrawal rate, taxes, health, and beneficiaries, comparing actual results with plan assumptions.
- Inflation assumption
- The projected annual increase in retirement expenses, often 2.5-3%, used to test whether income keeps pace; actual Social Security COLAs may differ.
- QLAC
- A Qualifying Longevity Annuity Contract held inside an IRA that defers income to as late as age 85 and is excluded from RMD calculations up to limits.
- Portfolio success probability
- A Monte Carlo estimate of the percentage of simulated market paths in which retirement assets last through the planning horizon under a given withdrawal plan.