Harbourfront Wealth Management Retirement Glossary

Last reviewed October 11, 2026

This glossary explains wealth management vocabulary in clear terms for teachers and public-school staff sorting through pensions, supplemental savings, and retirement dates.

Understanding the fine print helps you avoid unexpected tax bills and unnecessary investment costs. Harbourfront Wealth Management focuses on keeping fund expenses and taxes low so more of your paycheck stays in your pocket.

4

403(b) fee review: An examination of mortality charges, surrender fees, and mutual fund expense ratios hiding within a school district annuity or custodial account. Cutting an ongoing 1.5% fee to 0.2% saves $6,500 a year on a $500,000 balance.
403(b) plan: A tax-sheltered defined contribution retirement plan available to public-school staff and tax-exempt organization employees. For tax year 2026, employees can defer up to $24,500, with an extra $8,000 catch-up starting at age 50. Many older vendor products carry steep administrative charges.
457(b) governmental plan: A non-qualified deferred compensation plan for state and local public employees that allows pretax retirement savings. Unlike a 403(b), income draws taken before turning 59½ escape the 10% IRS early-withdrawal penalty once you separate from service.

A

Annual gift tax exclusion: The total value of gifts one individual may give another in a calendar year without filing an IRS gift tax return. For tax year 2026, this threshold is $19,000 per recipient. Spouses combining their gifts can transfer $38,000 per child each year.
Asset allocation: The division of an investment portfolio among broad categories like equities, bonds, and cash equivalents. An allocation balances growth needs against the risk of temporary market drops, reminding investors that portfolios can lose value and return less than invested.

B

Basis point (bps): A financial unit of measurement equal to one one-hundredth of one percent, or 0.01%. Advisors use basis points to express management fees and fund costs. For instance, a 50 basis point fee on $600,000 equals $3,000 a year.

C

Catch-up contribution: An extra amount individuals age 50 or older can deposit into employer plans or IRAs beyond standard limits. In 2026, the workplace catch-up is $8,000 ($11,250 for ages 60-63), while IRA catch-up is $1,100. It requires Roth treatment if prior-year FICA wages exceeded $150,000.
Cost basis: The original purchase price of an investment, adjusted for reinvested dividends, splits, and return of capital. When selling shares in a taxable account, you pay capital gains tax only on the gain above this figure.
Cost-of-living adjustment (COLA): An increase applied to pensions or Social Security checks to counteract annual inflation. For 2026 benefits, the federal Social Security COLA is 2.8%. State teacher pensions vary widely, from fixed rate increases to zero guaranteed adjustments.
Custodial fee: A flat or percentage charge levied by a brokerage or trust company for holding securities and issuing tax reporting documents. Harbourfront Wealth Management examines these custodial costs alongside fund expenses to keep total overhead low.

D

Defined benefit pension: An employer-sponsored retirement plan paying a guaranteed monthly check based on years of service, final average salary, and a set multiplier formula. Most state teacher systems use this model as the core foundation for educator retirements.
Defined contribution plan: A retirement plan such as a 403(b), 457(b), or 401(k) where future benefits depend on money deposited and market performance. For tax year 2026, total additions from employee deferrals and employer contributions cannot exceed $72,000.

E

Expense ratio: The annual percentage of fund assets deducted by managers to cover running costs, administration, and marketing. A fund charging 0.75% costs $3,750 annually on a $500,000 holding, whereas an index fund charging 0.05% costs just $250.

F

Fixed index annuity (FIA): An insurance contract whose returns track an equity index while guaranteeing against negative market performance, usually paired with caps, participation rates, or surrender fees. These products often appear on district approved-vendor lists with restrictive access rules.
Full retirement age (FRA): The age at which an individual qualifies for unreduced federal Social Security retirement benefits. For anyone born in 1960 or later, full retirement age is 67. Claiming earlier permanently cuts your monthly check.

G

Government Pension Offset (GPO): A federal law that reduces Social Security spousal or survivor benefits for people receiving a non-Social Security government pension. The reduction equals two-thirds of the educator's monthly pension payment, often eliminating spousal benefits entirely.

H

Health savings account (HSA): A tax-advantaged account paired with a high-deductible health plan allowing pretax deposits, tax-deferred earnings, and tax-free medical draws. For tax year 2026, contribution limits are $4,400 for self-only coverage and $8,750 for family coverage, plus a $1,000 age-55 catch-up.

I

Income draw: The distribution of money from investment or retirement accounts to pay regular living costs after paychecks stop. Sequencing these draws carefully between taxable, tax-deferred, and Roth balances helps manage tax brackets.
Individual retirement account (IRA): A personal tax-advantaged savings account outside the school district where workers hold mutual funds, exchange-traded funds, or bonds. Combined traditional and Roth IRA contributions are limited to $7,500 for tax year 2026, with an $1,100 catch-up for savers turning 50 or older.

M

Medicare Part B IRMAA: Income-Related Monthly Adjustment Amount added to Medicare Part B premiums for higher earners based on tax returns from two years prior. In 2026, standard Part B is $202.90 a month, but single filers above $109,000 pay surcharges starting at $284.10.
Modified adjusted gross income (MAGI): Your adjusted gross income with specific deductions added back, such as student loan interest or foreign income exclusions. The IRS uses MAGI to calculate Medicare IRMAA tiers and determine Roth IRA contribution eligibility.

P

Pension survivor benefit: An election chosen at retirement that continues all or part of a defined benefit pension to a surviving spouse after the member dies. Picking a 100% survivor payout lowers the educator's monthly benefit during life but protects the spouse.

R

Required minimum distribution (RMD): The annual mandatory amount retirees must withdraw from tax-deferred accounts like traditional IRAs, 401(k)s, and 403(b)s. RMDs start at age 73, shifting to age 75 for people born in 1960 or later, with steep excise taxes for missed deadlines.
Roth conversion: Transferring pretax retirement money from a traditional IRA or 403(b) into a Roth account, paying ordinary income taxes in the conversion year. Doing conversions during early retirement years before pensions, Social Security, or RMDs peak can lower lifetime taxes.
Roth IRA: An individual retirement account funded with after-tax money that provides entirely tax-free growth and tax-free qualified distributions. For tax year 2026, eligibility phases out between $153,000 and $168,000 for single taxpayers and $242,000 to $252,000 for married couples filing jointly.
Rule of 55: An IRS provision allowing workers who leave an employer in or after the year turning 55 to withdraw money from that specific employer's retirement plan without a 10% penalty. This rule applies to plans like 403(b)s, but does not apply to rolled-over IRAs.

S

Sequence of returns risk: The danger that market declines occur during the initial years of taking income draws from a retirement portfolio. Selling shares when prices drop accelerates asset depletion, since fewer shares remain to benefit from future market recoveries.
Service credit purchase: The buyout of extra years in a state pension plan for prior out-of-state teaching, military duty, or eligible leave. Harbourfront Wealth Management helps educators weigh whether using 403(b) balances to fund a buyout generates a sensible lifetime payback.
Social Security earnings test: A temporary clawback of Social Security benefits for individuals working while collecting benefits before their full retirement age. In 2026, the limit is $24,480 a year, with $1 withheld for every $2 earned above that threshold.
Standard deduction: A flat dollar reduction that lowers taxable income for filers who do not itemize expenses on tax returns. For tax year 2026, standard deductions are $16,100 for single taxpayers, $32,200 for married couples filing jointly, and $24,150 for heads of household.
Surrender charge: A fee insurance companies impose when an investor cancels an annuity contract or transfers funds out within a designated number of years. Surrender periods often last five to ten years, shrinking gradually by one percentage point each year.

T

Tax bracket: The rate at which each tier of taxable income is taxed under federal progressive tax laws, climbing from 10% up to 37%. For tax year 2026, the top 37% rate begins at $640,600 for single filers and $768,700 for joint returns.
Tax diversification: The strategy of spreading savings across taxable, tax-deferred, and tax-free accounts to control tax liability in retirement. Having multiple account structures allows you to regulate taxable income each year and keep Medicare Part B premiums low.
Tax planning for retirees: The ongoing coordination of income draws, pension timing, Roth conversions, and Social Security to keep lifetime federal and state taxes down. Strategic withdrawals help avoid Medicare premium jumps and unnecessary bumps into higher tax brackets.
Tax-deferred growth: An account status where investment dividends, interest payments, and capital gains accumulate without immediate taxation until distributions begin. Traditional 403(b), 457(b), and standard IRA balances utilize this tax deferral structure.
Teacher retirement planning: The process of aligning state pension payout options, 403(b) or 457(b) balances, and retiree healthcare to pick a sustainable resignation date. This coordination clarifies whether your predictable monthly income covers your household costs.

V

Vesting schedule: The timeline an employee must complete before gaining full ownership of employer retirement contributions or pension benefit rights. Public school pension systems frequently demand five to ten years of service before granting permanent pension rights.

W

Windfall Elimination Provision (WEP): A federal formula that lowers Social Security retirement benefits for educators who earned a pension from non-Social Security covered school work alongside outside jobs. The rule modifies the primary insurance calculation but never wipes out the earned benefit completely.