Glossary

Compound interest

Return credited on a balance that already includes earlier return. With contributions, each deposit starts compounding on the date it is added.

Real return

A return after inflation. A practical formula is (1 + nominal) / (1 + inflation) − 1. Real figures are in today's buying power.

Nominal return

A return before inflation. Nominal balances are future dollars and should not be compared with today's rent unless you inflate the rent too.

Savings rate

The share of income you do not spend. On this site it is savings divided by income. Taxes may or may not be inside your income figure; stay consistent.

FIRE number

Annual spending divided by a withdrawal rate. At 4%, it is 25 times spending. It is a portfolio target, not a prediction.

Withdrawal rate

The initial annual withdrawal as a fraction of the portfolio. The 4% shorthand comes from historical U.S. research over roughly 30-year horizons.

Coast FIRE

Having enough invested today that, with no further contributions, expected growth reaches your retirement portfolio target by a chosen age.

Barista FIRE

Covering part of spending with part-time or lower-stress work so the portfolio can be smaller. The job has to be real and has to last as long as you counted.

Lean FIRE

Financial independence on a modest budget. The math is an ordinary FIRE number. The risk is a budget with no slack.

Fat FIRE

Financial independence at a high level of spending. There is no official dollar cutoff. Higher spending scales the portfolio in a straight line.

Sequence-of-returns risk

The damage done when poor returns arrive early in a withdrawal period, while you are selling assets. A constant-return calculator cannot show it.

Match

Employer dollars added when you defer into a workplace plan, usually up to a percent of pay. It is compensation. The plan formula decides the amount.

HSA

A health savings account, available only with a qualifying high-deductible health plan. The tax treatment is favorable for medical costs. The health plan still has to fit.

RMD

A required minimum distribution from certain retirement accounts. Rules depend on the account type, the year, and whether you are the original owner or an heir.

Expense ratio

The annual fund fee as a percent of assets. It compounds against you. Reflect it by lowering the return in a calculator.

Index fund

A fund that tries to track a published list of securities. The word does not tell you whether the list is a broad stock market, a bond index, or a narrow theme.

Definitions are for reading this site. They are not legal or tax definitions.