The words, in plain English

The 4% rule

A rule of thumb saying that if you take 4% of your savings in your first year of retirement, and then increase that amount with inflation every year afterwards, the money should last about thirty years. On a pot of $500,000 that's $20,000 in year one, then $20,600, then $21,200, and so on — regardless of what markets do.

It came from studying past American market history, and it was always meant as a research finding rather than a personal instruction. It says nothing about your fees, your tax, your life expectancy, or your ability to spend a little less after a bad year — all of which matter more than the fourth decimal place of the rate.

Where it bites: Flexible withdrawal strategy puts the 4% rule head to head with two rules that adapt to what markets are doing. See also safe withdrawal rate.

Annuity

A deal where you hand over a lump sum and an insurer pays you a fixed income for the rest of your life, however long that turns out to be. You've bought certainty, and you've given up the money — it stops being yours, and usually stops being available to leave to anyone.

The trade is simple: you lose the upside and the flexibility, and in exchange you can never run out. Whether that's worth it depends almost entirely on how much other guaranteed income you already have.

Where it bites: Anywhere the site asks for "income that arrives regardless of markets" — an annuity counts, along with pensions and state benefits. See income stability.

Asset allocation

How your money is split between the main types of investment — typically shares, bonds and cash. It's the single biggest decision in a portfolio, and it matters far more than which particular fund or share you pick within each slice.

The usual shorthand is a pair of numbers: "60/40" means 60% shares, 40% bonds. More shares means more growth and more bumpiness. More bonds and cash means a smoother ride and less growth, which is its own risk once you're planning for thirty years.

Where it bites: Asset allocation after 60 builds a mix from your age, income needs and temperament, then stress-tests it. See also rebalancing.

Bond

A loan you make to a government or a company. They pay you interest at an agreed rate for an agreed number of years, then give your money back at the end. Because the payments are contractual rather than hopeful, bonds are generally steadier than shares — which is why they're the traditional ballast in a retirement portfolio.

Two things can still go wrong: the borrower fails to pay you back, or interest rates rise and make your existing bond less attractive than newly issued ones, which pushes its resale price down. The second is much more common than the first — see bond duration.

Where it bites: Bond duration risk and income stability.

Bond duration

A measure of how badly a bond is hurt when interest rates rise. Roughly: a bond with a duration of 8 loses about 8% of its value if interest rates rise by one percentage point, and gains about 8% if they fall by one.

The number is close to how many years you have to wait to get your money back, so long-dated bonds have high duration and short-dated bonds have low duration. This is why "I moved into bonds to be safe" can go so wrong: long bonds are not the safe part of a portfolio, and 2022 demonstrated that to a great many retirees at once.

Where it bites: Bond duration risk — including what a rate rise would do to what you currently hold.

Bond ladder

Instead of holding one big bond or a bond fund, you hold several that mature in consecutive years — one next year, one the year after, and so on. Each year one matures and hands you cash, which you either spend or reinvest at the far end of the ladder.

The point is that you're never forced to sell a bond at a bad price, because you simply wait for it to mature at full value. It largely removes the problem described under bond duration, at the cost of a bit more admin.

Where it bites: Bond duration risk shows what a ladder does to the same holdings.

Bridge years

The gap between stopping work and the point when your pensions or state benefits actually start paying. If you retire at 62 but your pension doesn't begin until 67, you have five bridge years to fund entirely from savings.

They matter disproportionately, because they're the years of heaviest withdrawal and they sit exactly where sequence risk is worst.

Where it bites: Pension deferral shows what funding the bridge does to your portfolio if you choose to wait for a bigger pension.

Compound return also: geometric return

The return you actually experienced, as opposed to the average of the yearly figures. These are not the same number, and the difference catches people out.

Gain 20% one year and lose 20% the next. The average is zero — but $100 became $120, then $96. You're down 4%. Your compound return is about −2% a year, and the compound figure is the true one, because it's the money you have. The gap widens as returns get bumpier, which is one reason volatility costs you something real rather than merely feeling unpleasant.

Where it bites: Sequence-of-returns risk shows both figures side by side.

Decumulation

An ugly word for the second half of your financial life: the years when money comes out rather than goes in. It gets its own term because it genuinely is a different problem — while saving, a market fall is a discount; while spending, the same fall is a permanent loss of the units you had to sell to eat.

Where it bites: Every calculator on this site. It's what the site is for.

Drawdown two different meanings

Confusingly, this word means two unrelated things, and which one applies depends entirely on who's talking.

1. Taking an income from your savings while the rest stays invested — as opposed to buying an annuity. In the UK this is the standard term for the whole arrangement ("flexi-access drawdown").

2. A fall from a previous peak. "A 35% drawdown" means an investment dropped 35% from its highest point. This is the sense used when talking about market falls and stress tests.

Where it bites: Both. Withdrawal strategy uses the first sense; risk capacity uses the second.

Equity release also: reverse mortgage, lifetime mortgage

A loan secured on your home that you don't make repayments on. The interest is added to the balance instead, and the whole lot is repaid when you die or move into care, usually out of the sale of the house.

The thing to understand is that unpaid interest compounds. At 7%, a debt roughly doubles every ten years while you do nothing at all. That isn't automatically a reason to avoid it — for someone who owns a house and has no cash, it can be the right answer — but it does mean the price is paid by whoever inherits, and the honest version of the sum should be looked at before rather than after.

Where it bites: Reverse mortgage suitability — how much you could release, and what it costs the estate.

Fee drag

What charges cost you over time, which is always more than the headline percentage suggests, because the money taken out never gets to grow afterwards.

One percent a year sounds trivial. Over twenty-five years it removes roughly a fifth of what you would otherwise have had. It is the only variable on this list that is entirely within your control and entirely certain — unlike returns, which are neither.

Where it bites: Portfolio complexity score works out what the layers in your portfolio are costing each year.

Guardrails also: dynamic withdrawal

A withdrawal rule with two tripwires. You set an income, and if your pot falls far enough that you're now drawing an uncomfortably high percentage of it, you cut your spending by a set amount — say 10%. If markets do well and you're drawing an unusually low percentage, you give yourself a rise.

It's a middle path between the rigidity of the 4% rule and the volatility of simply taking a fixed percentage of whatever you happen to have. The decision is made once, in advance and calmly, which is the actual point — the rule takes the choice out of your hands at exactly the moment your judgement is worst.

Where it bites: Flexible withdrawal strategy compares guardrails against the alternatives and shows what the flexibility is worth.

Inflation

Prices rising, which is the same thing as your money buying less. At 3% a year, something costing $100 today costs $181 in twenty years — or, looked at from the other end, today's $100 does the work of $55.

It's the risk people underestimate most, because nothing dramatic ever happens on any given day. It's also why "safe" is a slippery word in retirement: cash never falls in value on paper and loses a third of its purchasing power over twenty-five years at 1.5% inflation.

Where it bites: Inflation erosion, and as an input on nearly every other page. See also real terms.

Life expectancy — and why you shouldn't plan to it

Life expectancy is an average, which means roughly half of people live longer than it. Planning your money to run out at your life expectancy is planning for a coin-flip chance of running out while you're still alive.

There's a second trap: the life expectancy figure quoted in the news is usually measured from birth, and it's dragged down by deaths at every age. Once you've reached 65, your expected age at death is meaningfully higher than that headline number. The useful planning question isn't "how long will I live" but "what age would I be unlucky to pass?" — and for most healthy 65-year-olds that's somewhere around 95.

Where it bites: Will your money outlive you? uses a survival curve rather than a single age, precisely because of this.

Longevity risk

The risk of living a long time — which is only a risk in the narrow financial sense of your money having to stretch further than planned. It's the one risk on this list where the bad outcome is good news.

It's also the risk that quietly multiplies all the others: a longer retirement means more years of inflation, more chance of meeting a bad market, and more chance of needing care.

Where it bites: Will your money outlive you? and long-term care costs.

Means testing

When a government benefit depends on how much money or property you have, rather than being paid to everyone. The more you hold, the less you get — and above some threshold, nothing.

It matters here because it can quietly reverse a conclusion. A move that looks sensible on tax grounds can cost you more in lost benefits than it saves. This site does not model means testing in any country, deliberately — the rules differ everywhere and change often. Where a calculator has a threshold box, it's a number you type in, not a rule the site knows.

Where it bites: Long-term care costs has a means-tested support section. The tax assumptions audit is explicit about what isn't modelled.

Monte Carlo simulation

A dramatic name for a simple idea. Rather than assuming your investments return exactly 7% every single year — which has never happened to anyone — the calculator invents a plausible run of good and bad years, plays your plan through it, and notes whether you ran out. Then it does that a few thousand more times with different runs.

What comes out is a spread of outcomes rather than a single answer: in 87% of those imagined futures the money lasted, in 13% it didn't. Named after the casino, because the years are drawn at random.

Where it bites: Longevity, withdrawal strategy and sequence risk all run thousands of paths. See success rate for how to read the result, and how to read the results for the fuller version.

Nominal

A figure with no adjustment for inflation — the number that would actually appear on the statement. "Your pot will be $1.2 million in twenty years" is a nominal figure, and it is a much less impressive sentence once you know what $1.2 million will buy in twenty years.

The opposite is real. Nominal figures look bigger, which is why they're used in marketing.

Where it bites: Everywhere. How to read the results covers which figures on this site are which.

Percentile

A way of describing where something sits in a range. If a simulation says your 10th-percentile outcome is $200,000, it means 10% of the imagined futures ended below that and 90% ended above it. The 50th percentile is the middle one — half above, half below.

On a chart these usually appear as a widening band or "fan": the middle line is the typical outcome, and the edges are the unlucky and lucky ones. The width of the fan is telling you how uncertain the answer is, which is often more useful than the middle line.

Where it bites: Any chart with a shaded band around it. See how to read the results.

Preservation age

The age before which you can't touch a particular retirement pot, however much you'd like to. The concept exists in most countries under different names and different ages — it's the reason "how much do I have?" and "how much can I reach this year?" can be very different questions.

Where it bites: Liquidity risk, which checks whether you'd be able to reach your own money in an emergency. Your country's specifics are noted on the calculators via the country picker in the top bar.

Purchasing power

What your money actually buys, as opposed to what it says on the statement. It's the only measure that matters, and it's the thing inflation erodes while the number on the statement stays reassuringly still or even rises.

Where it bites: Inflation erosion is entirely about this.

Real terms also: real return, in today's money

The most important term on this page. A "real" figure has had inflation stripped out, so it's expressed in what money will buy rather than what the statement will say. A "real return of 4%" means 4% more purchasing power — if inflation ran at 3%, the headline return was about 7%.

Getting this wrong is the most common mistake people make with retirement calculators, and it goes in both directions. Enter today's spending against a return figure that includes inflation and you'll flatter your plan badly. See a projected balance of $2 million and forget it's a nominal figure, and you'll plan around money that doesn't exist.

The rule of thumb: if a chart is labelled "in today's money" or "real", you can compare it directly to what things cost right now. If it isn't, you can't.

Where it bites: Every projection on the site. How to read the results works through an example.

Rebalancing

Periodically selling a bit of whatever has done well and buying whatever hasn't, to get back to your intended asset allocation. If you set out to hold 60% shares and a good run has taken you to 72%, you sell some shares and buy bonds.

It feels wrong every single time — you're selling the thing that's working — which is precisely why it's worth having as a rule rather than a judgement call. Its real job isn't extra return, it's stopping your risk level drifting upwards without you noticing.

Where it bites: Asset allocation after 60.

REIT

A Real Estate Investment Trust: a company that owns income-producing property — warehouses, shopping centres, flats, data centres — and is required to pay out most of its rental income to shareholders. You buy and sell it like a share.

It's a way to own property income without owning a building, and the yields are usually attractive. The catch is that it behaves like a share, not like a house: the price moves daily, it can fall a long way, and it's unusually sensitive to interest rates.

Where it bites: REIT income and volatility — sector by sector, with a concentration check.

Safe withdrawal rate

The percentage of your savings you can take in the first year — increasing with inflation thereafter — with a high probability of the money lasting as long as you do. The 4% rule is one much-quoted answer to this question, not the question itself.

Your own rate depends on how long you need the money to last, what you hold, what you pay in charges, and how much you'd be willing to flex if things went badly. It's a personal number and it is very often not 4%.

Where it bites: Will your money outlive you? calculates yours.

Sequence-of-returns risk also: sequence risk

The risk that your bad market years happen to arrive early in retirement rather than late — and the surprising fact that this alone can decide whether your money lasts, even if the average return over your whole retirement is identical either way.

The reason is that a fall while you're taking money out is permanent in a way it isn't while you're saving. To fund this year's spending you have to sell units at the low price, and those units are gone — they can't take part in the recovery. Do that for two or three years running and no amount of later good returns fully repairs it.

If you never touched the money, the order of returns wouldn't matter at all. It's the withdrawing that turns a market problem into a personal one.

Where it bites: Sequence-of-returns risk — which lets you prove the point by turning withdrawals off. Then catastrophic loss avoidance for the fix.

Standard deviation written "s.d."

The technical name for the volatility number. It measures how far a typical year strays from the average one. If returns average 7% with a standard deviation of 16%, then roughly two years in three land between −9% and +23%, and about one year in twenty is worse than −25%.

You don't need the statistics. When a box asks for standard deviation, it's asking how bumpy the ride is, and 15–18% is the historical answer for a broad share portfolio.

Where it bites: The "volatility" input on sequence risk and other simulation pages.

Success rate

The share of simulated futures in which your money lasted the full period. A 90% success rate means that across the thousands of imagined market histories the calculator generated, the money survived in nine out of ten.

It is not a 90% chance that you'll be fine. It's a 90% chance within the model — a model that assumes you keep spending exactly as planned no matter what, which no real person does. In practice, someone heading for the 10% would notice at around year twelve and adjust, and the adjustment is usually modest. Read the figure as a comparison tool between two plans, not as a probability about your life.

The other thing it doesn't tell you is how badly the failures failed. Running out at 94 with a paid-off house is a different situation from running out at 78.

Where it bites: Every simulation page. How to read the results covers this in more depth.

Tax-deferred and tax-free

Three broad kinds of pot, whatever they're called where you live:

Taxable — an ordinary investment account. You're taxed as you go, on income and on gains when you sell.
Tax-deferred — you got tax relief going in, the money grows untaxed, and you pay tax when you take it out. Most workplace and personal pensions work this way.
Tax-free — you paid tax on the way in, and withdrawals are free of it.

Which one you draw from first can make a substantial difference over thirty years. This site lets you compare orders, but it does not know your country's tax rules — you supply an effective rate for each pot and it multiplies by it.

Where it bites: The withdrawal-order section of flexible withdrawal strategy. The tax assumptions audit maps the three types onto real account names in each country.

Volatility

How much an investment bounces around. High volatility means big moves in both directions; low volatility means a steadier line. It's usually quoted as a percentage — a broad share portfolio has historically run around 15–18% a year.

While you're saving, volatility is mostly a test of nerve. Once you're drawing an income it becomes a genuine financial cost, for the reason set out under sequence-of-returns risk, and because of the gap it opens between average and compound returns.

Where it bites: An input on most simulation pages, and the subject of risk capacity. See also standard deviation, which is the same number under a more forbidding name.