Strengthen Your 2026 Financial Plan and Optimize TSP and 403(b) Accounts for Heirs

0:00Elizabeth Ayoola:Today's episode is sponsored by Spectrum Business. What happens when your internet drops during business hours and you're the one running the business? Say goodbye to your to-do list, unless that list involved panicking and having trouble getting any actual work done. For business owners, being connected isn't a perk. It's how you take payments, talk to clients, and keep things moving. Not to mention pretty much everything else. Spectrum Business keeps businesses connected seamlessly with fast, reliable internet and advanced Wi-Fi. plus phone, TV, and mobile services if you need them. And Spectrum Business offers 100 % U.S.-based customer support 24-7 to help you stay up and running.

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1:19Elizabeth Ayoola:Restrictions apply. Service is not available in all areas. The 2026 Chevy Equinox is more than an SUV. It's your Sunday tailgate and your parking lot snack bar. Your lucky jersey, your chairs, and your big cooler fit perfectly in your even bigger cargo space. And when it's go time, your 11.3-inch diagonal touchscreen's got the playbook, the playlist, and the tech to stay a step ahead. It's more than an SUV. It's your Equinox. Chevrolet. Together, let's drive. If you're looking into a crystal ball, wondering what's up for 2026, good luck with that. We've got something better, actual research on what Americans are expecting to happen with their finances next year.

2:08Welcome to NerdWallet's Smart Money Podcast, where you send us your money questions and we answer them with the help of our genius nerds. I'm Sean Piles.

2:16Elizabeth Ayoola:And I'm Elizabeth Ayola. Later this episode, we'll be answering a listener's question about maximizing investments in a retirement plan. But first of all, our weekly money news roundup, where we break down the latest in the world of finance to help you be smarter with your money. Today, we're talking about how Americans are feeling heading into 2026. We want to know how they're feeling financially, emotionally, and everything in between. Our news colleague, Anna Hilhosky, is back to talk about the results of NerdWallet's 2026 Consumer Outlook survey that show a complicated picture of the year to come.

2:51After a year of one economic curveball after another, the outlook for 2026 is indeed complicated. But I do want to start with the bright side of things. Nervald's new report found that 63 % of Americans expect that 2026 will be financially better for them than 2025. And most say they also feel sure they can cope with a variety of potential financial pitfalls in the new year. But the findings, as you might expect, aren't all sunshine and rainbows. While most Americans are feeling good about their financial security, one-third still aren't certain they'll be able to financially withstand economic and personal money setbacks next year.

3:30People do tend to want a fresh start with the new year, so that optimism you mentioned isn't totally surprising, but there's anxiety in there too. The survey showed that more than a third of Americans feel optimistic and or confident, but nearly one-third also feel anxious and stressed. So without delving into gender stereotypes too much, there was a real divide between men and women when it comes to their feelings about their financial situation. More men are likely to say they feel optimistic or confident, while women are more likely to feel stressed or anxious. And on the generational side of things, younger Americans, that's Gen Z and millennials, are more likely to be excited about their finances compared to Gen Xers and baby boomers.

4:11So it seems like there's a real party mix of feelings swirling around right now. Yeah, you could say that. But overall, the findings show people are feeling pretty darn good about their finances going into 2026. And a majority said they are certain they can financially withstand a stock market crash, a recession, a loss of income, tariff-related price increases, and high inflation. So that's really overwhelmingly positive. But it's also safe to say that a good portion of Americans still have some serious concerns.

4:39Elizabeth Ayoola:What are those serious concerns? Even though most people are feeling assured about their finances, one-third still say they don't think they can handle a stock market crash or recession or high inflation. And nearly 40 % say they could not withstand an income loss. So that's still a significant portion of the population. And the findings also show that the biggest concern among Americans, and try not to be shocked, is price-related. More than half say they expect prices to worsen next year. And one-third say they expect consumer financial protections to worsen. But once again, there's still that optimism coming through.

5:1438 % of Americans say they do expect to be able to financially handle an emergency. Well, now that we know how people are feeling about their financial status, what do they say they plan to actually do next year? Of course, feeling and doing are not always aligned. And among all the financial actions the survey covered, nearly half of Americans said they plan to do some really traditional money moves, like using credit card rewards and saving money for emergencies. Nearly one-third say they plan to pay off one or more debts in full, and one in five say they plan to increase retirement contributions.

5:47All good things.

5:48Elizabeth Ayoola:But there are potentially risky financial actions that Americans plan to take in the new year too, right? Yeah, that's right. Nearly three in five Americans say they plan to take at least one financial risk in 2026, and here's what some of those risks are. About one in five said they plan to invest in crypto, which is pretty volatile. Nearly one in five say they plan to start a business, which is always a gamble. Nearly one in five also say they plan to invest in AI-related stocks and funds, even though there is a potential AI bubble expanding as we speak. And about 17 % say they plan to buy a new home, which, you know, that's a pricey venture.

6:27So when you're taking any financial risk, it kind of comes down to measuring your own personal risk and the shape of your finances. Yeah, just in general, your ability to weather negative outcomes.

6:36Elizabeth Ayoola:The survey was based on possibilities, so none of the setbacks are set in stone. And uncertainty can make anyone feel a little anxious. But there are some ways to prepare for potential pitfalls. Yeah, some tried and true advice would be, of course, save for emergencies. The goal is typically three to six months worth of expenses, but that can feel out of reach for a lot of people. So if three to six months feels out of reach for you, start with saving$1 ,000 and see what you can grow from there. Hang off debt is a big one, too. We're all broken records at this point, but paying down high interest debt first is always a good goal.

7:09Elizabeth Ayoola:And a debt payoff plan is crucial, but you want to choose one that works for you since there are so many different ones out there. That could be paying down your high interest debt first, the avalanche method, or using the debt snowball method to pay off your smallest balance first. But at a certain point, if your debt is just too high, you might want to look into debt consolidation or other debt relief options. There's no shame in getting help if you're really in a bind. You can start with a nonprofit credit counselor who can help you get a clearer picture of your situation and then your options moving forward.

7:42And once you've gotten that under control, the other longer-term possibilities can open up. And speaking of those longer-term moves, it's also a good idea to invest if you can. And in whatever ways are most viable, that might be stocks, bonds, CDs, your retirement accounts, those are all positive ways to set yourself up to be in a better position in the future. Well, Sean and Elizabeth, best of luck to us all in 2026. Crossing my fingers.

8:06Elizabeth Ayoola:I know. We're crossing our fingers and toes for a good year. Thank you, Anna. Up next, we answer a listener's question about maximizing investments in a retirement plan. But before we get into that, a reminder, listener, to send us your money questions. Before the year ends, do you need some help figuring out your financial plans for next year? Or maybe you have big travel plans and want some help making your savings plan. Whatever your question is, leave us a voicemail or text us on the Nerd Hotline. The number's the same, 901-730-6373. Again, that's 901-730-NERD. The email's also the same, podcast at nerdwallet.com.

8:44In a moment, this episode's money question. Stay with us.

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10:44Elizabeth Ayoola:We are back and we're answering your money questions to help you make smarter financial decisions. This episode, we're answering a question from a listener who sent us a text message. But before that, let's introduce our guest co-host for this segment. And she is none other than our fellow nerd, Amanda Burrowso. She's a good friend of the pod and you may remember her from sharing her no by year story, which inspired me. Hey, Amanda. Hi, Elizabeth. I'm so pumped to be here. So thanks for having me. Of course. And how's that no-buy year going? We need to have you back next month to update us. Well, you know, I wrote a story recently about how I've been thrifting my kids' Christmas.

11:25Like, not every gift, but a lot of them. And so that's been kind of a fun way to continue that challenge. So I'm happy to talk with you later, maybe next month.

11:32Elizabeth Ayoola:You're such an adventurous finance person, Amanda. You just, like, experiment and then you tell us all about it. I love it. That's true. So on that note, I'm going to let you, Amanda, do the honors of reading the listener's text. Okay, here we go. Hi, nerds. I retired from the military two years ago, and my wife is a teacher who plans to retire in four years. We can live comfortably on our pensions and Social Security. We have$1.2 million in retirement savings and a TSP and a 403B that we will not touch. How should we invest these funds? We plan to leave the money to our children and grandchildren.

12:08Thank you, nerds.

12:09Elizabeth Ayoola:To answer the listener's question, we have Taryn Fanouf, an investing nerd. Welcome, Taryn. Thanks for having me. I'm really excited to be here to talk about this reader question. I feel inspired by this listener. You know, both spouses in this family went into service-oriented careers, which is amazing, and I want to thank them both. And they're entering retirement with such an ideal scenario, don't you think? I do. It's a pretty thoughtful question. I'm excited to dive in. Well, since you're excited, let's go. and can you start by explaining what a TSP and 403B is? Lots of letters here. The listener has a large sum of money saved in both of these accounts.

12:47TSP is short for Thrift Savings Plan, and it's a type of retirement plan for government workers and others like military service members. And a 403B is a type of retirement plan for other public sector or non-profit workers, like employees at public schools. Both plans act a lot like a 401k, which listeners may be more familiar with. They offer tax advantages, so you can contribute pre-tax income and get your taxes reduced now. Or if your employer offers a Roth option, you may also be allowed to contribute post-tax dollars that grow tax-free. There are a couple other features that work similar to a 401k as well.

13:22An employer might offer matches to employee contributions, and they have the same annual contribution limits, which in 2025 is$23 ,500 for anyone under age 50. And if you're 50 or older, the limit is higher. So the money is already in these retirement accounts, and ideally it's invested. So how can the listener maximize their investments? Obviously, they could leave the money where it is, leave the investments to continue growing as they are. But sometimes in employer-sponsored retirement accounts, those investment options can be limited, can't they? Yes, that's true. Your options can be limited inside these plans, and it varies, but you may also find that the fees are higher than you would pay elsewhere.

14:04If the listener likes the plan's investment options and the fees aren't too high, like you said, they could leave the money where it is, but they'd want to make sure that they are familiar with how their plan works after they retire. Can they get payouts if they want? How's the money invested? How does it work to pass it on to their heirs? They'd want to make sure they answer those kinds of questions. Now, if they think they could get better investment options elsewhere, it's worth considering rolling the funds into an individual retirement account or IRA, that would allow them to improve the rates they're paying or the investing options available, and they'd be able to maintain the tax advantages of their plan.

14:37So for example, if you contributed pre-tax dollars to your plan and you roll it over into a traditional IRA, you can keep deferring those taxes until you take distributions later.

14:48Elizabeth Ayoola:So the listener has a long-term horizon for their investments considering that their kids and grandkids will inherit the money. What are some ideal investments to consider when you have a long time horizon, Taryn? This is such an interesting question. Before I get into it, I'll just note that I'm not a financial advisor and I'm definitely not this particular person's investment advisor, so I can't be too specific. And I'd say if they want more tailored advice on asset allocation, I'd recommend working with a fiduciary financial advisor. But I'll point out a couple things they should consider. As you mentioned, it's a long time horizon.

15:22If they plan to leave this money invested until after their deaths, it could grow for another 10, 20, 30 years, depending on how old they are now and how long they live. Normally, you'd see someone with that kind of time investing aggressively. But just because they're not planning to use it doesn't mean they want to risk it all. Unless they're trying to triple their kid's inheritance, but that doesn't seem likely. There are some compelling reasons to be more cautious, even though the time horizon is long. For one, they don't know how long that time horizon is really. Like they don't know how long their retirement will last.

15:53What do you mean by investing aggressively? I know financial advice is typically to invest heavily in stocks when you're further away from retirement, but to become more conservative later on as you're approaching that retirement age. So something like a target date fund can be a simple way to do this because they automatically manage the stock bond mix for you, gradually becoming more conservative over time. It's sort of like a hands-off approach, a hands-off way to do that. What do you think about something like that? Yes. When I say investing aggressively, I have that same sort of framework in mind.

16:25During the early years we're saving for retirement, we tend to invest more heavily in historically higher risk investments like stocks because we have a long time for the ups and downs of the market to even themselves out. That makes sense to me. Now, help me understand an example of investing more cautiously? Like, what does that look like? Once we're in retirement, or as we're approaching it even, it's wise to change up that asset allocation to make sure that our money isn't going to evaporate in an economic downturn. For someone in a situation like our listener, that may mean pulling back on traditionally higher-risk investments like stocks in favor of traditionally lower-risk investments like bonds.

17:02They may not totally get out of the stock market, but it would be a much smaller slice of the pie than they were when they're 35, like I am now.

17:10Elizabeth Ayoola:Speaking of retirement, the listener already seems set with their own retirement savings that they can pull from. Now, do you think there's a possibility that they could end up needing to pull from the funds that they're saving for their loved ones? I think they could experience unexpected costs in retirement that compel them to dip into these accounts. I'm thinking specifically of like long-term care or other health-related costs that can quickly bust any budget. One study by a long-term care provider called CareScout says the median annual cost of assisted living services in 2024 was over$70 ,000.

17:43Long-term care and assisted living aren't covered by Medicare, which I think a lot of people don't realize. It may be covered if you're using VA health benefits, which seems possible given the listener's experience in the military. But you want to do your research to make sure.

17:57Elizabeth Ayoola:Now, although the listener didn't ask, I'm thinking about how important it is to carefully plan when you intend to pass an inheritance on to loved ones. What are some high-level things a listener should consider when passing down retirement accounts to their kids and grandkids? Planning is so key. I have three things in mind that could get the ball rolling for someone who's in a situation like this. First, in this unique situation, you need to be aware of any rules governing the accounts while you're alive. For example, retirement accounts like these generally require you to start taking minimum distributions when you reach age 73.