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Planning your financial future

Financial glossary: Basic terms you should know

As you start your financial journey, you might come across some unfamiliar terms. Here’s what you need to know.
Starting the savings process is always a good thing, but you may feel a little overwhelmed by the number of words you hear that you don't know. Rather than be confused by it all, it's important to learn as much as you can since it can only benefit your planning down the road.

Here is a glossary of terms that might come up as you start your planning.

Financial glossary

Retirement income

The funds you get from Social Security, Individual Retirement Account (IRA)s, pension plans, annuities and 401(k)s, among other options, all make up your retirement income. This is the money you "make" during your retirement years.

Individual Retirement Account

An IRA is an investment account used for retirement that has tax-advantages — meaning you'll have opportunities that can potentially help lower your taxes while building your retirement.

The tax benefit varies depending on the type of IRA you select. The most well-known types of IRA are the traditional IRA and Roth IRA. Each IRA type has different tax rules that can help you save on taxes at different points in your retirement journey.

Defined contribution plans

A defined contribution plan is a retirement account that your employer provides or supports. You make contributions to the accounts to save for your retirement and, in some cases, your employer will match all or some of those contributions. A 457 plan is one example, so is a 401(k).

457 plan

A 457 plan is a voluntary retirement plan typically offered to employees of state and local governments, as well as qualified nonprofits. It allows you to make pre-tax contributions from your paycheck into an account that grows tax-deferred until it is withdrawn in retirement.


An annuity is a contract between you and your insurance company. You will pay a lump sum or set of payments over time and the insurance company will invest your money for you with a promise to provide a payment or series of payments at some point in the future. Under an immediate annuity contract, these payments begin immediately..

College savings plan

A college savings plan is a tax-advantaged way to save for college. The most popular of these plans is a 529 plan. These allow you to save for higher education costs and then withdraw funds to pay for qualified expenses, such as tuition, room and board, and books.

Money market account

A money market account is a deposit account offered by banks and credit unions that offers interest rates similar to a savings account and often allows you to write checks from that account, separate from a traditional checking account.

Compound interest

Compound interest is when you also earn interest on your existing balance and prior interest payments. For example, when you make a deposit in a savings account, it begins earning interest. That interest continues to build, earning more interest on top of what you have already earned.

Power of attorney

A general power of attorney is a legal document that gives one or more people (or even an organization) permission to make financial and legal decisions for you, often for a specific purpose over a period of time.


The probate process starts on the day you pass and is the court-supervised verification of your will. All of your assets go to probate and the process can take a while — especially if you don't have a will. If you do have a will, it's reviewed by a judge for authenticity and, if there are no problems, your assets will be distributed according to your wishes.

Asset protection

Asset protection includes some types of insurance you can get that help protect your assets, such as your home and car, in the event you're unable to continue paying for them because you've become disabled or lost your job. Examples of asset protection policies include credit life and credit disability insurance.

Life insurance beneficiary

As part of your life insurance policy, you can select a beneficiary — who your death benefit will go to after you pass. A beneficiary can include one or multiple people, as well as a charity, trust or organization, among other options. As long as you continue to pay your required premium on the policy, your death benefit will go to your beneficiary.

Renewable term life insurance

A renewable term life policy will allow you to renew or extend your existing term policy, up to a certain age, for an additional period regardless of your current health. It can benefit those who have suffered from health changes that would normally make them uninsurable.

Special needs trust

A special needs trust is a way to help continue to provide for a special needs person in your life after you pass. It's a trust that provides the benefits to the individual who needs them, and, when set up correctly, can help prevent a disabled person from losing their government program benefits.

There's a lot to learn when you begin your financial planning process, but understanding the key terms can help you figure out the best way to protect your family, and your assets, over the long term.



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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective or its subsidiaries.

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