MarketWatch’s Fix My Portfolio imagines what kind of financial questions someone like Minnesota Gov. Tim Walz, the Democratic vice presidential nominee whose personal wealth appears to be tied up mostly in pensions, might have…
Dear Fix My Portfolio,
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I am a 60-year-old government employee—former military, former teacher—and my wife is also a teacher. We now make a decent income of about $170,000 between us, and we live in a house that provides my job. We have two children, one is 23 and finished with school, and the other is 17 and about to go to college. I am open to a big promotion, but I won’t know until November if I get it. We don’t have much in savings, and we don’t have any significant stocks or bonds or other investments. We also don’t own any real estate at this time.
The good news is that we have a lot of pension income between us plus social security, which I expect will more than cover our living expenses in retirement. But what if we want to buy a house later or have high medical bills or just some other emergency that our savings can’t handle?
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Dear Campaigners,
Your situation is very familiar to me, as I grew up with parents who were teachers and arranged their retirement in much the same way.
For years, teachers have been encouraged to invest their 403(b) contributions in annuities, rather than the mutual funds more common in private-sector 401(k) plans. The mantra has always been “slow and steady wins the race.” So it’s not uncommon for people like you to tie up all of your savings in pensions and annuities and have no other savings in stocks and bonds. Salaries tend not to be high in this space, and that doesn’t leave much for individual investment. Only 61% of Americans own stocks of any kind, according to a 2023 Gallup poll. It works well for a lot of people, but there are some hurdles.
The biggest problem is that you run the risk of over-annuifying. If all of your retirement income is tied up in pensions, Social Security, or annuities that offer monthly payments, you could be left without a large nest egg to tap into for emergencies or even for big expenses you want. You’re stuck saving your whole life, putting aside portions of your monthly checks to pay for things you want later.
Financial advisor Mychal Eagleson told me about a teacher he knew who had a pension and also put all her 403(b) savings into an immediate annuity. The idea was that instead of just the amount you get from the government each month, you get an extra $1,000. “But when she needed a new car, her only option was to wait months and months to save up for it,” said Eagleson, whose company Teach Plan Retire specializes in helping teachers. “Pensions and annuities are great for stability, but they’re not good when the unknown comes along. You’re trading flexibility for certainty.”
You also make some tradeoffs for growth. In an annuity within a 403(b), you typically pay wraparound fees for the contract, in addition to any annual plan fees. Also, the growth potential is preset and can be well below the stock market in some years. If you had instead taken your contributions and put them into the kind of mutual funds that are common in a 401(k), you might have done better over the years. Plus, now that you are 60, you would have full access to the funds, as long as you pay income taxes on the distributions you receive.
“Most teachers don’t have access to self-directed investment options or even a plan where an advisor can help them,” Eagleson said. “Teachers need to tell their districts to make their 403(b) plan look like a private sector 401(k) plan.”
Another problem is that you can’t always count on retirement income. In some states, pensions are woefully underfunded and may end up paying out less than you expect. Social Security is also threatened with insolvency in the next 10 years, which could mean lower benefits for some. Also, depending on the state you’re in, some teachers and other public employees don’t qualify for Social Security because it’s factored into their state pensions. When you combine that with the fragility of the pension, it could spell disaster.
“There is a chance in life that you will not get what you are promised,” Eagleson said.
What you can do now
In the absence of change in the industry, you or any teacher can now try to diversify your retirement income sources. If your 403(b) plan has a match, that’s a good place to start, but only if the match is generous and there are investment options that don’t involve annuitizing the income.
Eagleson tells clients that their next best step would be to invest in a Roth IRA, where you put after-tax income so it grows tax-free. “As long as they don’t have a high-income spouse, it’s a Roth IRA all the way to the end,” he said. “It provides tax diversification, and then they don’t have to worry about every single distribution.”
Additionally, Eagleson said he would look into Roth 403(b) options, if available, because those could be rolled over to a Roth IRA in retirement and the growth would be tax-free. If there is an option to invest in a 457 plan — which is another type of retirement plan for social workers that is sometimes offered to teachers — do that instead of the 403(b). Eagleson said he generally prefers 457 plans because they tend to have investment options that are more like a 401(k) plan.
The general goal when you expect to have a lot of retirement income later in life is to save as much as possible outside of that structure, so that you have flexibility. For now, you may have to pay for college out of your current income and take out some loans, or hope for scholarships and grants. But if you change your strategy, you can save enough in the future to make a down payment on a retirement home.
That said, if you were to hold a high-level government position for, say, four to eight years, other opportunities could open up, such as a book advance, that could give you that instant liquidity pot of assets to fund your future goals. Even if you stay where you are, your profile could rise and lead to consulting work in retirement, and that could give you what you need to buy a retirement home and whatever else you need.
It would be interesting to see what your next update brings, to see if your situation has changed since you last reported. (Note: The Harris-Walz campaign has not commented on this scenario.)
Do you have a question about investing, how it fits into your overall financial plan, and what strategies can help you get the most out of your money? You can write to me at Please include “Fix My Portfolio” in the subject line. You can also join the conversation about pensions in our .
