How to Approach Retirement Planning in a Pandemic

Waylon Peterson, TCU President of Investment Services, joined TCU Talks to discuss how to approach retirement savings amid the economic volatility the pandemic has created.

The pandemic has created widespread economic challenges that can be disastrous for retirement plans.  

Waylon Peterson, TCU President of Investment Services, joined TCU Talks, a podcast from Teachers Credit Union, to discuss how to approach retirement savings amid the current volatility.




What would you say to someone in their late 60s, who is thinking about retiring early next year. Is that a good idea?

It can be a good idea. It just all comes down to your own risk tolerance and timeframe. Every single member’s situation is different and so it’s really important to sit down with a professional to really look at that situation.

You need to think about taxes, you need to think about healthcare costs, you need to be thinking about estate planning, you need to be thinking about what’s the best way to handle health-care costs in retirement. And so, yes, it can make sense to retire, but it’s really important that you have your whole situation in place before you decide on the day you’re going to retire.

So, the big question, when is the right time to retire? What are the pluses and minuses of quitting your job at different ages?

I always advise members to try to work as long as you can. However, I understand that not everyone can continue to work for a variety of reasons. If you do retire early, it is really important that you give a lot of thought to your debt situation and how are you going to spend those retirement dollars, taking a close look at health-care costs. I have often seen, for people who have retired before the age of 65, that most of their Social Security check after taxes goes toward that health-care premium.

The other huge thing to consider before you retire is life expectancy. My grandmother lived to be 103 years old and she spent more money than she received from Social Security up until the day she died — and she was still enjoying herself even in her early one hundreds.

I hope we all can have a good value of life into our 90s and 100s, and so we have to be planning that way.

Social Security benefits are a bit of a mystery to me. I’m aware with each paycheck I’m paying into it, but I don’t know how to go about claiming benefits and how do to even apply for benefits?

One of the biggest decisions you need to make is what Social Security benefit should I take and when should I take it. You really need to give serious thought before you make that decision.

You should sit down with a professional here at TCU, and we can do a Social Security Maximization Calculator for you. We put in your current age, your current benefit, the age of your spouse and then the most difficult part is a guess, but you have to decide your life expectancy. If your life expectancy is less for a variety of reasons, it can make sense to take Social Security earlier.

But in the example of my grandmother who lived to be 103, it positively makes sense to wait as long as you can. You can wait up until the age of 70 to take your Social Security. That is the way to get the maximum benefit.

The Social Security website ( is very secure and very easy to use. The vast majority of people access their Social Security benefits online. With COVID, it’s the only way you can access benefits at the moment.

Also, a mystery to me is the difference between an individual retirement account, or an IRA, and annuities. I know both are tax-advantaged ways to save for retirement. But what are the difference between the two?

First, there are two different types of IRAs. The first, is what they call a traditional IRA. In general, you invest now and you are able to deduct it from your taxes — it helps increase your tax refund. The Roth IRA helps you more in the future.

So, if you are saving for a second home someday, if you’re saving for future health-care expenses, or for your child or grandchild to go to college — a Roth IRA is a fantastic way to invest money. If you’re trying to figure out which one is best for you, sit down with one of our TCU Investment Professionals and we will help you go through all of that.

Then there are annuities, which are often misunderstood. There are bad annuities out there and you need to be careful that you are investing in the right type of annuity. The way to do that is to work with someone here at TCU, because we only work with companies that are A-minus rated or better, and they have shorter surrender charge periods.

There are four types of annuities, and they are wonderful tax-saving vehicles for you to help reduce some taxes while you’re working but still give you many benefits later, depending on your situation and needs.

Explain the surrender charge.

Basically, a surrender charge is a fee assessed for withdrawing funds from an annuity during an initial pre-set number of years. For a pre-set number of years, or the “surrender charge period,” there is an assessed fee if you make any withdrawals, and that amount goes down the longer you hold the annuity. For example:

  • Year 1 – 8 percent
  • Year 2 – 6 percent
  • Year 3 – 4 percent
  • Year 4 – 2 percent
  • Year 5 – No charge

Again, this is just an example. The number of years and the percentages will vary depending on the type and terms of the annuity involved.

It is also important to understand that most annuities offer what is called a “free withdrawal provision.” This provision allows a contract owner the ability to withdraw a designated portion of their funds, often 10 percent each year, without incurring a surrender charge. Withdrawals will be subject to ordinary income tax and may be subject to an additional 10 percent federal income tax if taken prior to age 59½.

Depending on the type of annuity, there may be circumstances where surrender charges are waived. For example, if the contract owner is confined to a nursing home.

In general, like a Share Certificate or CD, the longer you’re willing to tie up your money, the better your rate. With a fixed annuity, it’s somewhat similar. A fixed annuity is just one of the four types of annuities.

An annuity is a contract between you and an insurance company in which the company promises to make periodic payments to you, starting immediately or at some future time.

Indexed annuities differ from fixed annuities, which pay a fixed rate of interest. Variable annuities base their interest rate on a portfolio of securities chosen by the annuity owner. Both index and variable annuities are complex investments and because of that, they are sold by prospectus — a legal document that describes a security to investors.

Required by the SEC, a prospectus contains facts about the company or fund, its finances, management and other information. You need to get a prospectus from a financial professional before you make any decisions. Always be sure to read and understand the features, benefits and all other fees and expenses.

In the Federal Reserve’s latest report on the economic wellbeing of U.S. households, only 36 percent of non-retired adults said their retirement savings were on track. That means over 60 percent of working adults are worried that they’re falling behind. Do you think these fears are warranted, or are the savings expectations we place on ourselves too high?

I do think those fears are warranted. These are difficult times and I’m not trying to underplay it in any way. There are companies who are no longer matching their 401(k) or 403(b) contributions. The number of pensions that exist in the private sector are few compared to when my parents worked. And it is hard to save money. But the key to doing so is to start early, get a good plan and to continue to save as long as you can in good times and bad.

Hopefully, you have enough emergency money here at TCU that if something does happen, and someone loses a job or gets a pay cut, you have money set aside in a savings account or a short term CD that you don't have to touch that retirement plan and you can continue to let it grow.

There are many people today who don’t have enough retirement. The goal is to retire debt free and wait until Medicare age of 65 to retire, so your health-care expenses can be less. For anyone who retires before the age of 65, health care is usually the number one expense.

Well, that leads into my next question. As someone who recently dealt with a major medical issue, healthcare and medical expenses occupies a lot more space in my mind. It’s frightening to think about paying the medical bills I had last year without employer-provided health insurance. How do people afford health care in retirement?

If you’re going to retire before the age of 65, you need to be really careful. Sometimes it means that you work for a couple more years because your company does offer employer-covered health care. I very much understand that when you’re 63, 64 years old, you’re tired and you may not be able to work as well as you used to. At the same time, it can be tremendously expensive to retire before the age of 65. My recommendation is to try your hardest to work till age 65. Hopefully you can even work till you’re 70 and then take your full, maximum Social Security.

My second recommendation is to be debt-free. If all of a sudden you decide to retire at age 62 or 63, and the house is paid off and you don’t have a car payment, the money that used to go toward these expenses can now pay your health-care premium. If you’re debt-free, it makes it easier to retire before age 65.

One of the best ways to save for future health-care premiums is a Health Savings Account (HSA). Often it’s one of the best ways to save money to pay the cost of future premiums through COBRA, which gives workers and their families who lose their health benefits the right to choose to continue benefits provided by their group health plan for limited periods of time under certain circumstances such as voluntary or involuntary job loss. Qualified individuals, however, are usually required to pay the entire premium for coverage. HSA savings can be used to cover the premium.

The second-best way I like to save for future health-care premiums is a Roth IRA. If you’re over the age of 50, you can save up to $7,000 a year. And if you’re under the age of 50 you can save up to $6,000 a year — and have that that grow completely tax free. So, if you’re 62, 63 years old, and you really do want to retire, you have money set aside that you can access without any taxes whatsoever.

So, what about taxes in retirement? I have a hunch they don’t go away.

It’s another reason why you should sit down with one of our TCU professionals. We have calculators to estimate your taxes in retirement. Often, the best way to lower your taxes is by using the tools we’ve discussed — annuities, traditional and Roth IRAs, Health Savings Accounts.

Also, many of us will need to pay federal income taxes on Social Security in our retirement years. It’s important to know if you go online and see what your Social Security benefit is, it’s not the actual number. It doesn’t include taxes. So, your check is likely to be a lot less than you anticipate.

You mentioned this before, pensions are becoming a thing of the past. I’m lucky to have one from a previous employer, but honestly, when I left, I didn’t know what to do with it. Should I have cashed out my pension or was it good that I left it as future income?

It comes down to life expectancy, risk tolerance, timeframe. For many retirees it’s peace of mind to have that guaranteed pension check and Social Security.

Now, when it comes to 401(k) and 403(b) rollovers, often it makes sense to put it into an IRA and to have that money grow tax deferred for retirement. Then, you control your own assets for your own retirement. Our investment professionals here at TCU will sit down with you and help you figure out if it’s the best decision to leave that former 401(k) where it is, or to take that pension early, or to wait. And just because an uncle or a friend makes one decision, it doesn’t mean that it’s the best decision for you.

It used to be a rite of passage for many to pay off the mortgage after 30 years and then retire. Does it still make financial sense for retirees or those nearing retirement to pay off their mortgage?

Yes. To reduce stress during your retirement years, you need to know your expenses. When you have fixed expenses that you can’t do anything about, it can lead to stress during your retirement years — and it can lead to you believing that you have to sell your investments while the market is down.

But if you’re debt free and have money set aside for health-care premiums, you can ride the roller coaster with less stress. When you sign the paperwork to retire, you should try to be debt free.

Once you’ve retired, there’s no longer a margin to adjust your investments. With this in mind, how should one’s money be invested after they retire?

First, while you’re working, it’s really important to stay the course and have an emergency fund set up so that when we do get the volatility in the market — and we always will — hopefully you’ll be in a spot where you don’t have to sell while the markets are down. Hopefully you’ll just continue to put money in that Roth IRA, and that traditional IRA, and that 401(k) or 403(b) and let it grow until you do retire. And then when you do retire, make sure you are well diversified and have different eggs in different baskets.

A good rule of thumb for a conservative investor is to take your age and subtract it from a hundred —that’s about how much money that you can have in the stock market. If you are 60 years old and you’re about to retire, you still are going to need money, hopefully in your 80s and 90s.

When Social Security began, the age to start receiving benefits and life expectancy were almost connected. Now, they’re dramatically different. People are living for decades after they retire.

When I set up my 401(k), I set up percentages to allocate money towards. When and how often should I change my 401(k) mix?

You always want to look at what’s happening in your life. If all of a sudden something is changing and that retirement date is moving up, or that retirement date is moving back — whatever it may be — if there’s real life changes that are happening, you need to be looking at changing your allocations. It’s all about that risk tolerance and time frame. If your time frame changes, you need to rebalance your portfolio asset allocation.

I’m okay with your 401(k) setup being on autopilot as long as you’re aware that you’re making that choice. But I’d like you to sit down with a TCU professional and go through things to make sure you’re on pace to meet your retirement goals.

Maybe you need to be a little bit more aggressive with your money, maybe you need to reduce your risk or the amount that you’re contributing. And not just the 401(k), but your debt situation, your future health-care expenses, college planning for the kids. You always want to look at the whole picture and we can help you do that at TCU.

I go to my primary care physician once a year, my dentist, twice a year. How often should I come to my TCU professional for a financial checkup?

I would say at least once a year. But during the pandemic, TCU’s financial advisors are calling our members to proactively to make sure that we’re talking them through what’s happening. We have had seminars and a couple different webinars about Social Security planning and market volatility. As best we can, we work to keep our members up to date on what is happening. We try to be very proactive to help members through these difficult times.

How do I go about setting up an appointment with a TCU investment professional?

You can go online, You can set up a meeting by email or by calling us at (800) 756-6210.

During these difficult times, we understand that not everyone is comfortable coming into a branch. We’re holding phone and virtual meetings where we meet with members from their homes. If a member doesn’t even feel comfortable coming into a service center, we can open up an account online or send paperwork in the mail.

Does it cost members anything to meet with you?

Positively not. There’s no cost, there’s no obligation. Now, the different investments that we recommend do have some costs to them, but there is no cost for us to help you develop a financial plan. We would love to have more of our members call us. We want to help as many people as we can.