We earn $7K a month, have $798K in retirement and will get pensions. But we want to help our child buy a house, and my wife wants to retire at 55. Do we need professional help?

Question: As teachers, my wife and I bring home $7,000 a month combined.  We save 20% of our income in pre-tax 403(b) contributions (current value $120,000 combined) and max out our Roth IRAs each year in which we have $28,000.  We have $60,000 in an emergency fund, and another $650,000 in a brokerage account. We own our home and have monthly expenses of around $500 (taxes, insurance, lawn and pool service). We have no debt of any kind but one car is 10 years old and will need to be replaced in the next 2 years. 

My wife would like to retire in 3 years at which point her pension will be about $33,000 a year — 48% of her current salary.  She will be 55.  I will then have to cover her health insurance, which will subtract about $800/month from my pay. Should I plan to stop contributing to my 403(b) to cover that additional expense? Should we look at drawing from the brokerage account to make up for her diminished income and if so, how much should we withdraw per year with the knowledge that we want to maintain our current comfortable standard of living? We would also like to contribute a max of $50,000 to our child’s first house when the time comes. Should we hire an advisor to help us? (Looking for a financial adviser too?
This tool can help match you with an adviser who might meet your needs.)

Answer: Bravo on doing a great job putting yourselves in what appears to be a pretty solid financial situation! There’s a lot to unpack here, so let’s tackle this question by question.

Should you hire a financial adviser? 

Maybe. “This is a major life change for the two of you and needs to be done right to avoid financial or marital stresses,” says certified financial planner Ken Robinson at Practical Financial Planning. If you feel like you can tackle this without too much stress — you do seem to have a pretty solid angle on your finances — you may be able to do it without professional help.  If not, a pro might be worth it. This tool can help match you with an financial adviser who might meet your needs.

One thing the pros noted that’s important to consider: You likely have far more than the $500 per month of expenses you mentioned, as those expenses did not factor in things like clothing, shelter, food and healthcare. “It’s crucial to know how much you actually spend — it’s the foundation of the answer to your questions,” says Robinson. Indeed, knowing how much you spend will help you figure out whether you have enough to retire and buy your child a house.

This recent The Advicer column goes into some of the questions to ask yourself to see if you have enough to retire, and this one talks about the 15 question to ask any adviser you might hire.

Have an issue with your financial adviser or looking to hire a new one?
Email [email protected].

Should you stop contributing to your 403(b) to pay for your wife’s healthcare expenses? 

You should not, says certified financial planner Carleton McHenry at McHenry Capital; instead, take from the emergency savings account to cover this. “It appears you have too much in this account at $60,000 and if you had 6 month’s worth of your income set aside in this account, you would only have $42,000, which should be enough. The additional $18,000 could cover almost two years of her healthcare costs,” says McHenry.

What’s more, because the market has sold off this year, you don’t want to liquidate your investment account at a time when your investments are at a certain low point. “I’d prefer you to keep contributing to the 403(b) while you’re still working. Does your company match your contributions up to a certain percentage? If so, make sure you at least contribute up to this maximum amount,” says McHenry. 

Looking for a financial adviser?
This tool can help match you with an adviser who might meet your needs.

Should you withdraw from your brokerage account to make up for your wife’s diminished income?

“Your retirement will be based on your income and expenses and it sounds like your income is predetermined based on your salary. Look at your investment returns and expenses to determine whether they can sustain your retirement expenses and care,” says certified financial planner Don Martini. And in terms of which accounts to draw from, certified financial planner Patrick Logue at Prudent Financial Planning says it might be worth creating a plan which would include a distribution strategy. Make sure you understand the tax consequences associated with withdrawals.

If that feels overwhelming, it may be smart to consult a financial adviser. This tool can help match you with an financial adviser who might meet your needs.

Logue adds that you should consider Social Security too. Though not super common, depending on the type of pension you have, it may reduce the amount of Social Security payments you collect. You’ll want to check to see if you’re subject to the Windfall Elimination Provision (WEP), which is a “formula used to adjust Social Security worker benefits for people who receive “non-covered pensions” and qualify for Social Security benefits based on other Social Security–covered earnings,” the Social Security Adminstration explains.

Note this too: When your wife retires, your income will drop from $7,000 per month to about $5,250 per month, which puts you in the 12% tax bracket, says certified financial planner Chris Chen at Insight Financial Strategists. “Based on the spending numbers you have provided, you should be able to handle the additional cost of insurance, but you need to consider that your wife’s income is unlikely to be inflation adjusted. Based on the 3% inflation rate, it’s 9% for now, it will lose something like 50% of its purchasing power over 20 years and assuming she lives to be 95, which is not unusual, her pension would lose 75% of its purchasing power. Even with your frugal spending, that might become tight,” says Chen.

And because markets are down now, is there a way your wife can keep working? “A financial planner can help look at your wife’s pension calculations to see if it makes sense for her to keep working for a few more years,” says Logue .

Logue adds: “Is your wife contributing to a 403(b) and a pension? You may want to see if there is a Roth option in your 403(b). A financial planner could help you determine whether Roth or traditional 403(b) contributions would be appropriate,” says Logue. Unlike a traditional pretax 403(b) account, a Roth 403(b) would allow you to contribute after-tax dollars and withdraw tax-free dollars when you retire.

Should you be contributing to your child’s home, and if so, how?

Of course, we know you want to also contribute $50,000 to your child’s first house. But there may be better ways to do it than drop a lump sum on them. “Think about the financial behaviors you can help your child create; lump sum gifts rarely contribute to improved habits,” says Robinson. Other ways you can help facilitate healthy financial habits would be to set up a Roth IRA or match an amount that your kids can put up for a down payment.

Have an issue with your financial adviser or looking to hire a new one?
Email [email protected].