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Part 4 Key Terms
Part 4 Key Terms - Working with Older Adults
| Term | Definition |
|---|---|
| Accelerated benefits or living benefits | A rider on an insurance policy that allows the insured persons to collect an agreed-upon percentage of the death benefit prior to their death if they become terminally ill. The remainder of the benefit is then paid out upon the death of the insured. |
| Accumulation period | The period beginning with entry into the workforce and ending with retirement is the wealth accumulation period. |
| Adjusted gross income (AGI) | Total amount of a person’s wages, dividends, and other financial receipts minus adjustments to income, such as alimony paid and deductible contributions to individual retirement accounts. |
| Administrator (administratrix) | Person who settles the estate when an individual dies intestate. |
| Advance directive | Statement made by an individual, usually in a written document, concerning the medical treatments to be provided and decision maker to be appointed if the patient becomes terminally ill or incapacitated. |
| Annuitant | Recipient of annuity distributions. |
| Annuity | Income from capital investment paid in a series of regular payments. |
| Asset | What a person owns. Assets include cash and cash equivalents, invested assets, and use assets. |
| Asset allocation | An investment strategy that can reduce risk by dividing an investor’s assets among several different asset classes such as stocks, bonds, cash, money market securities, as well as real estate, insurance, collectibles, and other assets. |
| Asset class | A group of assets with similar return, risk, and liquidity characteristics. The simplest asset class categorization scheme includes only three types of financial assets |
| Balance sheet | Financial statement listing a client’s assets, liabilities, and net worth as of a specific date. |
| Beneficiary | In the context of insurance, a person or entity that has a remainder interest in policy proceeds. In the context of trusts, a person who benefits from the trust and who has beneficial ownership of trust assets. |
| Bond | Debt that represents a legal obligation of the issuer to pay principal and interest when due. |
| Budget | Financial statement listing expected income and expenses for a future period of time. |
| Combination annuity | An annuity that allows the owner to allocate premium payments between separate fixed and variable accounts at set intervals, usually annually or quarterly. |
| Compounding | Process of interest accumulating on both a principal balance and previously earned interest. |
| Conservator (guardian of the assets) | Person appointed by the court to manage the financial and legal affairs of an incapacitated individual. |
| Defined benefit plans | An employer-sponsored retirement plan that the company manages for its employees. The employer takes the investment risk. Pension payments represent a lifetime income for retirees. |
| Defined contribution plans | Tax-deferred retirement plans sponsored by employers for their employees. Employees choose how to allocate their contributions among investment choices and bear the investment risk. |
| Delayed payout annuity | This is another name for a longevity annuity, also called longevity insurance. It is a special type of deferred income annuity. A delayed payout annuity does not start making payments until the annuitant reaches a certain age. |
| Distribution | Outflow from a retirement plan. For mutual funds, a payment by a mutual fund to shareholders, either in cash or shares, for dividends received from securities in the fund or capital gains generated from the sale of securi¬ties in the fund. |
| Distribution period | The period following retirement, during which accumulated funds are withdrawn to meet living expenses. |
| Diversification | The process or strategy of investing in different types of assets to reduce risk. |
| Employee Retirement Income Security Act of 1974 (ERISA) | Federal law governing the operation of most private tax-deferred retirement plans. Qualified employer-sponsored retirement plans must comply with ERISA. |
| Equity | Ownership, in particular pertaining to having the right to share in future profits or appreciation in value (e.g., value of property, stock value). |
| Equity-indexed annuity | A version of a fixed annuity, it pays a base return and an interest rate based on an outside index such as the stock market. The interest may increase if the index increases. |
| Estate | All property interests a person owns, including property over which the person exercises decisive control. |
| Estate plan | Documents that detail the instructions to be followed during disability or after death. People without an estate plan in effect choose to let the laws of the state provide these instructions. |
| Estate planning | Process of directing one’s affairs to provide income, investments, and appropriation of assets for oneself or others during life and upon disability or death. |
| Executor (executrix or personal representative) | Representative responsible for distributing property when an individual dies with a valid will. |
| Fixed annuity | An investment contract that provides the person who buys the annuity from an insurance company (the annuitant) a series of fixed payments for the length of the contract. |
| Guardian | Court-appointed fiduciary responsible for a minor or incompetent person. |
| Heir | Person entitled to inherit property under state intestacy statutes. |
| Incapacity (loss of capacity) | Patient’s inability, as determined by a physician and as a result of pain, medications, brain damage, or an unconscious state, to make his or her own health care decisions. |
| Indexed annuity | A variation of a fixed annuity. The annuity pays a base return, but the interest rate is based on an outside index, such as a stock market index. If the index increases, the interest rate might also increase. |
| Individual retirement account (IRA) | Investment plan that any individual with earned income can establish and fund. The IRS sets annual contribution limits for individual taxpayers, based on their filing status. |
| Inflation | General increase in the level of prices within the economy due to the valuation of the dollar (i.e., more dollars are required to buy a particular item). |
| Inflation protection | Insurance policy option that provides for increases in benefit levels to help pay for expected increases in the costs of long-term care services. |
| Inflow | Pertaining to the cash flow statement, the dollars, such as from salary, dividends, interest, rental income, alimony, child support, or investment redemptions, received by an individual during a particular period. |
| Itemized deductions | Actual expenses that a person paid during the calendar year that are subtracted from adjusted gross income to reduce taxable income. |
| Life expectancy | Length of time that estimates the number of years a person will live. |
| Life income annuity | Product in which payments are distributed only until the annuitant dies. No benefits are payable to a beneficiary. |
| Life income with period certain | Life insurance option in which payments are guaranteed for a stated amount of time, such as 10 or 20 years, after which, if the annuitant is still alive, he or she continues to receive payments until death, but there is no benefit for a beneficiary. |
| Life settlement | A policyholder no longer wants or needs the life insurance policy and sells it to a third party for a sum less than the face value of the policy but more than the cash surrender value. |
| Living will | Document signed by a competent person, stating which health care measures should or should not be taken in terminal situations if the person is incompetent to make such decisions at that time. |
| Long-term care insurance (LTCI) | Coverage for various custodial care expenses in the event the insured becomes incapacitated as defined in the policy. |
| Lump-sum distribution | Retirement plan distribution that you can take as income (on which you will pay taxes), or roll over to a traditional IRA within 60 days or to another eligible plan |
| Money purchase pensions | A type of defined-contribution plan similar to a profit-sharing plan. Contribution amounts are fixed rather than variable. Employers are required to make annual contributions to each employee’s account. |
| Mutual fund | Open-end investment tool that pools the money of many investors and hires an investment advisor to invest that money to achieve one or more financial objectives. |
| Net worth | Residual value after liabilities are subtracted from assets. Net worth represents the amount that is owned by an individual or family if unencumbered by debt. |
| Nondeductible IRA | Individual retirement account in which contributions are taxable as part of current income. |
| Outflow | Expenditure or use of cash. |
| Permanent life insurance | Life insurance that can have level premiums and builds up a cash value within the policy. |
| Pour-over will | A legal document that ensures any assets not already in a revocable living trust at the time of death are transferred into the trust so that the instructions in the revocable living trust will be effective. |
| Power of attorney | Written document executed by one person who authorizes another person to act on his or her behalf. |
| Probate | Legal process of administering and distributing an estate after death. |
| Qualified retirement plan | An employer-sponsored retirement plan for employees that meets IRS rules and offers tax advantages. |
| Required beginning date (RBD) | For individual retirement accounts, qualified plans, and section 403(b) arrangements, the date by which distributions from the plan must begin, based on the plan owner’s birth date. |
| Required minimum distribution (RMD) | Lowest annual required distribution amount for an IRA holder who reaches age 70 1/2. |
| Reverse mortgage | A loan available to homeowners who are 62 years or older that enables them to convert part of the equity in their home into cash. The homeowners keep the title to the home and must continue to pay expenses. |
| Revocable living trust | A trust that can be changed while the grantor is alive; often used to plan for the possibility of mental incapacity. |
| Rollover | Movement of funds from one retirement plan to another, usually a different type of plan—for example, from a 401(k) to an IRA or from a Roth 401(k) to a Roth IRA. |
| Roth 401(k) | An employer-sponsored retirement plan that allows employees to make after-tax contributions that grow tax-deferred, similar to a Roth IRA. |
| Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) | A plan in which a small business with 100 or fewer employees can offer retirement benefits through employee salary reductions and matching contributions (similar to those found in a 401(k) plan). It can be either a SIMPLE IRA or a SIMPLE 401(k). |
| Single premium annuity | An annuity that the purchaser pays for in full with one total premium amount at the time of purchase, instead of choosing to pay the total premium amount in regular installments (e.g., monthly). |
| Social Security | Government program in which covered workers meeting certain past-service requirements and their qualified dependents are eligible for limited retirement, medical, disability, and death benefits. |
| Spousal IRA | Individual retirement account for a spouse who earns less than the maximum contribution amount or has no earned income from work. |
| Standard deduction | The amount set by federal law that is subtracted from adjusted gross income to reduce taxable income. It consists of (1) a standard amount for all ages, (2) an additional amount for those age 65 or older, and/or (3) an additional amount for blindness. |
| Statement of cash flows | Statement of household cash inflows and outflows for a given period—typically a month or a year; also called an Income statement. |
| Stock | One of the two most common types of investments (bonds are the other). A stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings. There are two main types of stock |
| Suitability | A situation (and sometimes a legal requirement) in which an investment strategy meets the objectives and means of an investor. In most parts of the world, financial professionals have a duty to ensure that an investment is suitable for a client. |
| Supplemental Security Income (SSI) | Federal program funded by general tax revenues designed to help aged, blind, or disabled people who have little or no income and require help meeting basic needs for food, clothing, and shelter. |
| Target date fund | Mutual fund consisting of a mix of debt and equity that is designed to shift the fund’s allocation away from equities and into debt as a specified date approaches, to reduce risk gradually over time in a specified manner. |
| Tax credit | Dollar-for-dollar deduction that offsets calculated tax. |
| Term life insurance | Life insurance that is purchased for a specified period of time and builds no cash value. This type of insurance can become prohibitively expensive at advanced ages. |
| Testamentary trust | A trust established under a will that is created when the will is probated after the grantor dies to provide for asset management for minors, asset protection for adult heirs, or estate tax planning. |
| Time diversification | The phenomenon by which average annual investment returns (e.g., for stocks) become more certain (i.e., have less probable risk) as a client’s time horizon lengthens. |
| Time horizon | The period between making and withdrawing the investment to meet goals or other financial needs. |
| Treasury bill | Short-term obligation of the US government that is issued at a discount and redeemed at face value upon maturity. Income received upon maturity is not taxed at a state or local level. |
| Trust | Fiduciary arrangement, set up by a grantor, whereby property is held and managed for a named beneficiary by a third party, known as a trustee. |
| Variable annuity | Investment product in which the benefits paid out vary according to changes in the value of the portfolio supporting the annuity. |
| Viatical settlements | The sale of a life insurance policy to a third party when the policy owner is terminally or chronically ill and has a life expectancy of no more than two years. |
| Will | Legal document that specifies how a person wants to distribute probate property and provides other instructions upon the person’s death. |
| Roth IRA | Non-deductible IRA with several unique features: Withdrawals are not taxable if left in the account for five years; the owner may continue to make contributions to the account after age 70 1/2; and there is no required beginning date for withdrawals. |
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