# Glossary

Short definitions for the FIRE and compounding terms used on WealthCompounds.

**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.

HTML: https://wealthcompounds.com/glossary

---

Educational only. Not investment, tax, or financial advice. Canonical HTML: https://wealthcompounds.com