Invest Yourself For a Better Retirement™


AM Best Ratings

AM Best Company rates the creditworthiness of issuers.  The Best’s Financial Strength Rating (FSR) is an independent opinion of an insurer’s financial strength and ability to meet its ongoing insurance policy and contract obligations. The FSR scale is comprised of 16 individual ratings grouped into 10 categories: consisting of three Secure categories of “Superior,” “Excellent” and “Good;” and seven Vulnerable categories… Read More →


Annuitization is the conversion of an annuity investment into a series of periodic income payments.  Annuitization is either an election under a deferred annuity to convert its balance into an income payment, or applying the balance toward the purchase of an immediate annuity (a separate, distinct insurance contract from the previous deferred annuity).

Annuity Ladder

An annuity ladder is a retirement income strategy that involves purchasing immediate annuities over several years instead of purchasing a one immediate annuity at one point in time. There are several reasons for pursing an annuity ladder strategy over purchasing a single immediate annuity: There is less risk that, upon death in the early years… Read More →

Back End Sales Load

A “Deferred Sales Charge (Load)” is a sales load that investors pay when they redeem fund shares (that is, sell their shares back to the fund). You may also see this referred to as a “deferred” or “back-end” sales load. When an investor purchases shares that are subject to a back-end sales load rather than… Read More →

Benefit Mode

Benefit mode is a term associated with immediate annuities the represents the frequency of the income benefits paid from the annuity to the annuitant.  Common benefit modes are monthly, quarterly, semi-annually, and annually.


A Bond is a security issued by a business, municipality, government, or government agency that promises the “bondholder” a contractually defined schedule of interest payments and principal repayments.  The issuing entity must meet their obligation as defined within the covenants of the bondholder agreement before any distribution of assets can be made to stockholders. Bonds… Read More →

Bond Ladder

A bond ladder is portfolio of bonds that generates cash flow, comprised of interest payments and maturities, that is synchronized such with the cash needs of the holder of the bond ladder. Typically, a bond ladder will include bonds of various maturity dates, and the amount of bonds purchased wit different maturity dates is determined… Read More →

Call Option

A call option is a derivative security that grants to owner of the option the right to purchase a specified amount of an underlying security at a specified price (the “strike price”) at a specified time (the “exercise date”). By owning a call option on an underlying investment, a payoff from call option will occur… Read More →

Cash Refund

Cash refund is a feature associated with some immediate annuity contracts that promises to deliver income benefits that are at least equal to the amount of the premium paid.  Typically, if the annuitant dies before the sum of the income benefits received exceed the premium, an additional benefit equal to this difference is payable to… Read More →


A collar is a financial strategy using call options and put options on a specified underlying investment that, when held with the underlying investment, creates a “cap” and “floor” on the return of the investment during the period that the collar is in effect. A collar is comprised of a short call option position and… Read More →

Consumer Price Index (CPI)

An index, defined by the Bureau of Labor Statistics in the US, of the variation in prices paid by typical consumers for retail goods and other items. It is used as a measure of inflation, or the rising price of basic necessary goods.

Dividend Stock

A dividend stock, also referred to as an income stock, is an ownership slice in a corporation that is expected to pay steady and predictable dividends (cash distributions to owners) to shareholders. Dividend stocks are typically associated with businesses that are not expected to experience significant growth, are in mature and stable industries, and have… Read More →

Exchange Traded Fund (ETF)

An exchange traded fund (“ETF”) is similar to a mutual fund, in that it is a pool of assets that issues shares to the public that represent a unit of ownership to those assets. How are ETFs different from Mutual Funds? ETFs operate more like shares of stock – purchases and redemptions of ETFs are… Read More →

Expense Ratio

The ratio of total fund operating expenses to average net asset of a fund over the course of a year.

Fixed Immediate Annuity

A fixed immediate annuity is a type of immediate annuity that has determined benefit payments defined by the insurance contract.  The beneficiary does not participate in any investment risk; all investment risk is borne by the insurance company. The benefits under a fixed immediate annuity may be unchanged over the benefit period, adjusted by a… Read More →

Foreign Stocks

Foreign stocks are units of ownership of publicly-owned corporations that are outside the United States. Foreign stocks may be attractive to some investors, because: They can allow investors to increase the diversification of their portfolio by placing a portfolio of their investments in that are less directly related to factors that influence returns on US… Read More →

Front End Sales Load

“Sales Charge (Load) on Purchases” includes sales loads that investors pay when they purchase fund shares (also known as “front-end sales loads”). The key point to keep in mind about a front-end sales load is that it reduces the amount available to purchase fund shares. For example, if an investor writes a $10,000 check to… Read More →

Guaranteed Minimum Income Benefit

A guaranteed minimum income benefit is a feature associated with a variable annuity contract that guarantees that the income benefit received from the annuity will not be less than a specified dollar amount, regardless of how the underlying funds of the annuity have performed.  This serves as a form of protection to the contract-holder against… Read More →

Immediate Annuity

An immediate annuity is a form of insurance issued by a life insurance company that provides periodic payments to the beneficiary, or annuitant.  Immediate annuities are purchased with a single premium payment when purchasing the annuity, and the only benefit received afterward are the specified benefit payments – immediate annuities do not have a cash… Read More →

Joint & Survivor Benefit

A joint & survivor benefit is associated with the income benefit of an immediate annuity that has two annuitants, where the amount of the income benefit received from the annuity depends upon how many individuals are alive.  Typically, income benefits are reduced by a contractually defined percentage upon the first death of the two annuitants,… Read More →

Large Cap Stocks

Large Cap stocks are units of ownership in larger, well established corporations.  ”Blue chip stocks” are a type of large cap stock, but that is also regarded as being very stable and high quality; a large cap stock is only characterized by its size.  The term “cap” is a reference to “market capitalization”, which is… Read More →

Life & Periods Certain

Life & Periods Certain is a term associated with benefits received from an immediate annuity, indicating that the annuity initially pays a “certain” payment (for example, one that is not dependent upon the survival of an annuitant) over a prescribed period of time and, once this period of certainty elapses, payments continue as long as… Read More →

Longevity Insurance

Longevity insurance is a type of immediate annuity that provides fixed and defined payments, similar to a fixed immediate annuity, but does not start making payments to the beneficiary until the annuitant reaches a specified age, often 80 or 85; benefits payments then continue for the remaining lifetime of the annuitant. Referring to this product… Read More →

Market Cap

Market cap is an abbreviated reference to “market capitalization” which is the total value of all outstanding stock of a publicly traded corporation, so it is essentially a representation of the market value of the firm.

Market Cap Orientation of Index

The universe of stocks is often categorized in different ways, one of which is based upon the market capitalization of the firms associated with each stock.  Market capitalization (or “market cap”) is the value of all outstanding shares of stock of a firm, representing the total market value of the firm. “Large Cap” stocks are… Read More →

Mid and Small Cap Stocks

Mid Cap and Small Cap stocks are units of ownership in corporations that are smaller than Large Cap corporations.  The term “cap” is a reference to “market capitalization”, which is the aggregate market value of a firm. Stock investments in smaller corporations are often viewed as having greater risk and return volatility, because they may… Read More →

Moody’s Rating

Moody’s rating symbols for Insurance Financial Strength Ratings are identical to those used to indicate the credit quality of long-term obligations. These rating gradations provide investors with a system for measuring an insurance company’s ability to meet its senior policyholder claims and obligations. Aaa Insurance companies rated Aaa offer exceptional financial security. While the credit profile of these… Read More →

Nestor: Assumptions

Inflation Basic spending and discretionary spending are both subjected to a 3% inflation assumption. Investment Returns, before “Shock Drop” Cash generates a return of 0.11%. TIPs generate a return of 3.00%, which is equal to the inflation assumption; it is therefore assumed that TIPs just cover inflation and do not provide any additional yield. Growth… Read More →

Nestor: Information Needed From You

Single or Joint Life Analysis Indicates whether the analysis will be for one or two individuals Age(s) The current age(s) of the individual(s), which is used to define the length of the period of analysis and the estimated price of annuities Gender(s) Used to estimate the price of annuities Savings The amount of money available… Read More →

Nestor: Limitations

The appropriateness of the results are dependent upon the accuracy of the information provided by the user, including age, gender, existing sources of income, retirement savings, basic spending needs, and risk tolerance. Actual results will be better or worse than what is assumed by Nestor, in which case discretionary spending, basic spending, annuity purchases, and… Read More →

Nestor: Margin of Safety

There are several ways of incorporating a margin of safety into your retirement income plan, which will have the effect of increasing the likelihood of meeting or exceeding your income needs in the future: Use of Conservative Assumptions:  Nestor uses conservative assumptions relating to investment returns (using the “shock drop” scenarios) and the planning period… Read More →

Nestor: Portfolio Allocation Methodology

Nestor creates retirement income strategies by combining a series of product types following a prescribed methodology. Components of a Nestor Retirement Income Strategy The components of any retirement income strategy created by Nestor include: Cash  - The amount of cash held in the portfolio at any time is equal to the amount needed to cover… Read More →

Nestor: Shock Drop Scenario

The “shock drop” scenario refers to the investment return assumption used by Nestor for the growth portfolio when determining retirement income strategies, which involves lower return assumptions in the first two years. The intention of using these assumptions is to build some conservatism into the plan, which is accomplished in two ways: Lower return assumption… Read More →

Operating Expenses

Operating expenses of a fund include: Management Fees Management fees are fees that are paid out of fund assets to the fund’s investment advisor (or its affiliates) for managing the fund’s investment portfolio, and for administrative fees payable to the investment advisor that are not included in the “Other Expenses” category (discussed below). Distribution [and/or… Read More →


An option is a derivative security that grants the owner the right to buy (a “call option”) or sell (a “put option”) a given underlying investment (typically a stock, bond, index, or commodity) at a specified price, within a specified period of time. See “call option” or “put option” for more details.

Periods Certain Only

Periods Certain Only is a form of benefit received from an immediate annuity that does not have any contingency upon the survival of an annuitant.  Payments will be made over a period of time as defined by the annuity contract, regardless of whether the annuitant is alive.

Purchase Fee

A purchase fee is another type of fee that some funds charge their shareholders when the shareholders purchase their shares. A purchase fee differs from, and is not considered to be, a front-end sales load because a purchase fee is paid to the fund (not to a broker) and is typically imposed to defray some… Read More →

Put Option

A put option is a derivative security that grants to owner of the option the right to sell a specified amount of an underlying security at a specified price (the “strike price”) at a specified time (the “exercise date”). By owning a put option on an underlying investment, a payoff from put option will occur… Read More →

R Squared

A statistical measure that represents the percentage of a fund or security’s movements that can be explained by movements in a benchmark index. In statistics, the coefficient of determination R-Squared is used in the context of statistical models whose main purpose is the prediction of future outcomes on the basis of other related information. It… Read More →

Redemption Fee

A redemption fee is another type of fee that some funds charge their shareholders when shareholders redeem their shares. Although a redemption fee is deducted from redemption proceeds just like a deferred sales load, it is not considered to be a sales load. Unlike a sales load, which is used to pay brokers, a redemption… Read More →

S&P Rating

S&P Insurance Financial Strength Ratings are useful for buyers of insurance, risk managers and employee benefit administrators.  This type of rating provides details on an insurance organization’s ability to pay its policies and contracts. Insurance brokers and agents may also use these ratings to meet due diligence and disclosure requirements. AAA  Superior AA+   Excellent AA… Read More →

Share Weighted/Cap Weighted

Indices are generally calculated using one of two different methods, either a “share weighted” method or a “cap weighted” method. Under a share weighted method (sometimes referred to as a price-weighted method), the index is calculated using a single share of each constituent, or stock, included in the index.  The Dow Jones Industrial Average is… Read More →


Stock is a unit of ownership in a publicly traded corporation.  Stock entitles the owner (“stockholder” or “shareholder”) to the profits generated by the firm. Stocks generate returns to their owners in two ways: Periodic cash distributions called “dividends” Changes in the price of stock Stockholders participate in both the risks and rewards associated with… Read More →

Systematic Withdrawals

Systematic withdrawals are associated with a technique used to generate income by making periodic redemptions from savings. Under a systematic withdrawal strategy, each year savings increase with investment returns and decrease by the amount of any withdrawals; if there are periods when income (such as wages) exceed spending, savings increase by the amount of any… Read More →

Target Date Fund

Target date funds, also referred to as life cycle funds, are a type of mutual fund or Exchange Traded Fund (ETF) that periodically modifies its asset allocation to become increasingly conservative as it ages.  The intention is to hold an asset allocation appropriate to individuals within a given age range.  These funds generally become more… Read More →

Three Lines of Defense Strategy

The “Three Lines of Defense Strategy” is a retirement income planning framework developed by Nested Interest.  It involves breaking down income needs over three different time horizons, and matching these needs to an appropriate financial vehicle to meet them. The three time horizons, and financial products to meet their associated income need, are as follows:… Read More →

Treasury Inflation Protected Securities (TIPs)

Treasury Inflation Protected Securities (“TIPs”) are bonds issued by the United States federal government that pay coupons and a maturity value that is linked to the Consumer Price Index (“CPI”).  Coupons are paid twice annually, by applying a fixed coupon rate to a principal amount that is indexed to the CPI.  Upon maturity, you are… Read More →

US Bond Funds

A US Bond Fund is either a mutual fund or Exchange Traded Fund (ETF) that is fully invested in bonds issued in US dollars by corporations, municipalities, or the US federal government.  Funds generally provide the investor with the convenience of buying into an existing, diversified portfolio of investments that follow an objective that is… Read More →

Variable Immediate Annuity

A variable immediate annuity is a type of immediate annuity that provides an income benefit that varies with the investment returns of a set of investment funds selected by the contract-holder. At contract inception, the initial benefit is calculated based upon an assumed investment return (“AIR”); if actual investment returns were to exactly match the AIR… Read More →