5 Obscure Retirement Terms You Need to Know

Big swings in the market can feel a lot more stressful — and take a bigger toll on your portfolio — if you’re overinvested in stocks. That’s why many financial advisers recommend maintaining a diverse mix of investments to mitigate your risk when the market turns bearish.

“Stocks can help your money grow over the long term, while bonds, cash, CDs and short-term Treasuries can help steady the ride,” says Vincent Birardi, a senior wealth adviser in Long Beach, California.

He also encourages retirees to keep a cushion of cash or liquid investments, like high-yield savings accounts and money market accounts — generally six months to a year of living expenses — so that they aren’t forced to sell stocks in a downturn to pay the bills.

3. What is the “sequence of withdrawals” in retirement?

A. The order in which you pull money from different retirement accounts and assets.

B. Taking money from your oldest retirement accounts first, before they stop earning interest.

C. The order in which you sell stocks, from most valuable to least valuable

D. Withdrawing equal amounts from each retirement account to keep your assets balanced.

Correct answer: A

Not all retirement dollars are the same in the eyes of the IRS. When you take money from traditional IRAs and 401(k)s, those withdrawals usually count as ordinary taxable income, while Roth IRA withdrawals are typically tax-free (because Roth contributions are taxed before going into the account). That’s one reason why your sequence of withdrawals is crucial.

“By choosing carefully which accounts to tap and when, you can control how much income you report to the IRS each year,” says Roger Whitney, a certified financial planner and retirement specialist in Mansfield, Texas. 

That reported income affects more than just your tax bill — it can also affect what you pay for health insurance if you have an Affordable Care Act marketplace plan, and it can determine whether, and to what extent, your Social Security benefits are taxed. Well-timed withdrawals can help your savings last longer, reduce surprise taxes or surcharges, and give you more flexibility later in retirement.

4. An income annuity is …

A. A tax benefit from a part-time job in retirement.

B. A one-time lump sum payment that you receive from a pension when you retire.

C. A high-interest savings account that’s only available for people over age 65.

D. An insurance product that provides you with regular monthly payments.

Correct answer: D

An income annuity is a way to turn part of your nest egg into a steady flow of cash, typically for the rest of your life. “You give an insurance company a lump sum, and in return, it promises to send you regular payments for as long as you live,” says Birardi. He describes it as “insurance against outliving your money,” because the payments keep coming no matter how long you live.

A common type of income annuity is a single-premium immediate annuity (SPIA), which provides payouts typically within 30 days. For many retirees, that guaranteed payment can be reassuring. Instead of frequently wondering whether your portfolio will last, you know at least one stream of income is locked in. That appeal might explain why annuity sales reached a record $121.2 billion in the third quarter of 2025, according to a survey by the Life Insurance Marketing and Research Association (LIMRA), a trade group for the financial services industry.

However, there are trade-offs. If you purchase an immediate annuity when interest rates are low, you lock in lower payouts for life. Because the payments are fixed, inflation can erode their value over time — although some plans allow you to purchase a cost-of-living rider (often called a COLA rider), where your annuity payments increase annually to help offset the effects of inflation. 

In addition, once you’ve handed over the lump sum to an insurance company, you typically can’t get it back if, for example, you have an expensive emergency. Keeping your money in a retirement account like a 401(k) or IRA provides more flexibility — you can change your investments, or take out more or less as needed.

The key factor when determining whether an income annuity is right for you is how much you value guaranteed income versus control of your nest egg. For some people, putting a slice of their savings into an annuity while retaining the rest in retirement accounts and other assets strikes a comfortable balance.

5. What is “longevity risk?”

A. The risk that you’ll need expensive long-term care as you get older.

B. The risk that you’ll live longer than expected and your savings won’t last.

C. The risk that inflation will reduce your purchasing power over time.

D. The risk that your retirement accounts will lose value in a market downturn.

Correct answer: B

Many people fear outliving their savings, understandably — retirement costs keep rising, and people are living longer. “Longevity risk” encapsulates that fear.

“Living a long time should be good news,” Whitney says, “but the challenge is making sure your money lasts as long as you do.”

One of the most powerful levers you have is choosing when to start collecting Social Security. Delaying your claim gets you a higher monthly payment, for life. Waiting until age 70 to file for retirement benefits will result in a 77 percent larger payment than if you claim at 62, the earliest age of eligibility. However, financial, health and family issues can affect the calculus of when to claim.

But it’s not an either-or between grabbing your benefit as soon as possible or waiting to lock in the maximum payment. The goal is to find a sweet spot for your situation. A financial adviser can help you make this decision, as well as help you determine what adjustments, if any, you should make to your saving, spending and investing strategies.

You can find one by searching a directory operated by trade groups such as the CFP Board of Standards, the National Association of Personal Financial Advisors (NAPFA) or the Financial Planning Association (FPA).​