Question: “After working 27 years for the same great company, I am ready to retire at 59 ½ in December, when I can access my 401(k). With a fluctuating bonus, I make about $100,000 a year. My husband is retired and has Social Security, but is still on my insurance. We outright own both our $300K and car. We have no debt. I have $575K in my 401(k) that over the last three years has gone up an average of $125K a year. I have $350K in a bank CD that produces about $15K a year in interest and another $125K in cash; having cash gives me security. I grew up very poor, so I’m very risk adverse.

Our monthly expenses are around $2K — mostly pet costs and taxes. We are not vacation people nor do we overspend. Insurance costs for both of us (until I reach 65) would be an additional $400 a month. I might retire and get a part-time job to cover insurance costs. Does this plan sound wise? Who should we work with to make sure we’re prepared financially?”

Answer: For the most part, you’re entering this next phase in a strong financial position considering you own your home and car outright, your monthly spending is low and you’ve built formidable savings across your 401(k), CDs and cash reserves, says Steve Sexton, retirement planning professional and CEO of Sexton Advisory Group. That said, pros tell us you could still benefit from a financial adviser. You can use this free tool that can match you to a fiduciary adviser, from our partner SmartAsset, as well as resources like NAPFA and the CFP Board.

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Your husband’s Social Security benefit plus the $15,000 in annual interest from your CD already cover a large portion of your baseline expenses. “This, along with more than $575,000 in your 401(k) implies you have more than enough cushion to support a conservative withdrawal plan. A smart bridge strategy would be picking up part-time work to cover health insurance until you’re eligible for Medicare. Doing so would ease the pressure on your portfolio during the early years of retirement,” says Sexton.

What to do with your 401(k)

That said, you may want to reevaluate your investment mix before you retire. “While your 401(k) had a great run, especially in recent years, this is not a growth rate you can bank on. Make sure your portfolio is positioned for income and stability rather than the aggressive growth that might have driven those past returns,” says Sexton.

You also mention that you’ve worked at the company for 27 years. “If you have company stock within your 401(k), make sure to learn a tax rule called Net Unrealized Appreciation. If your company stock inside your 401(k) is highly appreciated then this tax rule could save you a lot of tax dollars over your lifetime if you make use of it correctly,” says financial adviser Jeremy Keil, author of Retire Today: Create Your Retirement Master Plan in 5 Simple Steps.

Additionally, you should look into building a tax-efficient withdrawal strategy. “Many people with significant cash cushions default to spending their cash and CD interest first. That feels safe, but can possibly lead to higher taxes when RMDs kick in. A coordinated plan that blends cash, interest income and small strategic withdrawals from your 401(k) can help blunt the impact of taxes over time,” says Sexton. Additionally, you can try to project what your tax rates will be in the future and find the best times to pay taxes intentionally at the low rates through Roth conversions, says Keil.

What to do with CDs

“If interest rates go down, the CD income you receive on CD renewals can drop a lot. That can leave a gap you were not planning for,” says certified financial planner Nick St. George at St. George Wealth Management.

Certified financial planner R.J. Weiss at The Ways to Wealth concurs and says the only area he would pay attention to is the amount you’re holding in cash and CDs. “Holding that much cash creates reinvestment risk. If interest rates drop and those CDs mature in a lower-rate environment, the $15,000 of annual interest they earn today could fall quickly,” says Weiss.

Being risk averse is a valid reason to hold more cash, but Weiss says many retirees settle on two to three years of expenses in cash-type reserves. “As those CDs mature, it may make sense to gradually shift some of those dollars into something with a better long-term outlook such as diversified bond allocation or short term Treasuries,” says Weiss.

But one thing St. George recommends avoiding is over allocating to safety. “Security matters but it doesn’t mean keeping cash-like assets for too long. This brings different risks as inflation quietly shrinks the purchasing power over time. Low-spending households need a part of the portfolio invested for long-term growth which helps keep retirement affordable,” says St. George.

Other things to consider

Since you’ll need a new car in the future, you can also set aside a bucket for big expenses in the future. “A sinking fund created for these expenses can help prevent surprises and keep your retirement withdrawals predictable,” says Sexton.

And don’t underestimate the potential costs of healthcare. “Your $400/month estimate is reasonable but the cost of healthcare is still one of the biggest swing factors in early retirement,” says Sexton.

What kind of financial adviser is right for you?

Given your priorities, Sexton suggests working with a fee-only fiduciary planner who specializes in retirement income planning, not just investment management. “You’ll want this person to help you build a tax-efficient withdrawal plan, stress-test your retirement income under different market conditions, help you manage healthcare costs before Medicare and optimize your Social Security and future RMDs,” says Sexton. 

When looking for an adviser, Keil says you’ll likely want to work with someone who holds either the RICP (Retirement Income Certified Professional) or RMA (Retirement Management Advisor) designation. “Ask them what they specialize in and who their typical client is. They should have a lot of experience in your situation. Also ask how they’re compensated. If they focus on planning and the process of educating you then that’s a good sign,” says Keil. 

Ultimately, Weiss recommends working with a CFP who is fee-only, since you may only need someone you can meet with once a year or every few years for a checkup to make sure you’re on the right path. “Having this person in your corner can also help you decide how to yse your resources, because there is room at your current asset level to increase spending if you choose, whether through giving or meaningful goals. Having expenses this low and being genuinely satisfied with your lifestyle is a real strength,” says Weiss. You can use this free tool from our partner SmartAsset that can match you to a fiduciary adviser, as well as resources like NAPFA and the CFP Board.

Have an issue with your financial planner or looking for a new one? Email questions or concerns to picks@marketwatch.com.

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