Retirement Income Glossary: Key Terms, Explained Simply

Withdrawal rate: The share of your savings you take out in a year. Usually quoted for the first year of retirement: $40,000 from $1,000,000 is a 4% withdrawal rate. Only money taken from savings counts; Social Security and pensions don’t. See it in action: Safe Withdrawal Rate Calculator
4% rule: A rule of thumb that you can withdraw 4% of savings in the first year of retirement, then raise that dollar amount with inflation each year, and expect the money to last about 30 years. It comes from William Bengen’s 1994 research on U.S. market history. See it in action: 4% Rule Calculator
Safe withdrawal rate: The highest starting withdrawal rate that would have lasted a given number of years in every (or nearly every) historical period. “Safe” describes the past, not a guarantee about the future. See it in action: Safe Withdrawal Rate Calculator
Guardrails: Spending rules that adjust withdrawals when markets move a lot. If your withdrawal rate rises well above where it started (after a market drop), you cut spending a little; if it falls well below (after strong growth), you give yourself a raise. Based on rules published by Jonathan Guyton and William Klinger in 2006. See it in action: 4% Rule vs Guardrails
Spending floor: The lowest spending you’re willing to accept under a guardrails plan, often 75% to 90% of your starting spending. Cuts stop at the floor. See it in action: 4% Rule vs Guardrails
Bucket strategy: Dividing retirement savings into a cash or bond “safety” bucket holding the next few years of withdrawals, and a growth bucket invested mostly in stocks. You spend from the safety bucket and refill it when markets are doing well. See it in action: Retirement Bucket Calculator
Guardrail buckets: Income Horizon’s combined plan: guardrails set how much you spend each year and a cash bucket pays it, refilled only when investments are near their previous high. See it in action: Guardrails vs Bucket Strategy
Sequence-of-returns risk: The risk that poor returns arrive early in retirement, while you’re withdrawing, doing lasting damage even if later returns are good. Two retirees with the same average return can end up far apart because of the order of returns. See it in action: Sequence-of-Returns Risk
Real return: A return after subtracting inflation. If investments grow 7% in a year when prices rise 3%, the real return is about 4%. Income Horizon reports everything in real terms, in today’s dollars. See it in action: Retirement Inflation Calculator
Inflation (CPI): The rise in prices over time, usually measured by the Consumer Price Index. It erodes the buying power of fixed income, which is why retirement plans raise spending each year. See it in action: Retirement Inflation Calculator
Historical success rate: The share of past retirement start years in which a plan lasted its full length. A 94% rate over 30 years means the plan lasted in 65 of the 69 possible start years from 1928 to 1996. See it in action: 4% Rule Calculator
Monte Carlo simulation: Testing a plan against thousands of randomly generated market histories. Income Horizon builds each simulated history from random 5-year blocks of real U.S. returns, which keeps crash-and-recovery patterns intact. See it in action: Fixed vs Dynamic Withdrawals
Bear market: A decline of 20% or more in stock prices from a recent high. U.S. examples include 1929–1932, 1973–1974, 2000–2002 and 2008. See it in action: Market Crash in Year One
Bridge years: The years between retiring and starting Social Security, when savings pay all of your spending. They are usually the heaviest withdrawal years of an early retirement. See it in action: Retire at 55 Calculator
Rebalancing: Selling some of what has grown and buying what has lagged to return to a target mix, such as 60% stocks and 40% bonds. Our calculators rebalance once a year. See it in action: Safe Withdrawal Rate Calculator
Total return: Price change plus dividends or interest, assuming they’re reinvested. The S&P 500 figures we use are total returns. See: historical returns data

Retirement income glossary