I am 57 1/2 years old. My wife just retired from a government job and her pension is about 4200 per month. I am thinking about retiring from my job and maybe going to work in a less stressful, maybe partime job. I have about 750,000 in my 401K and have been with the same company for 37 years. As I understand it I can take the money out of my 401K and only have to pay State and Federal taxes and not the 10% penalty. Is my understanding correct?

Is my understanding correct?

Yes, you are correct. If you separate from service from your employer in the year you turn age 55 or later, you can take withdrawals from a 401(k) plan that is with that employer without having to pay the 10% early withdrawal penalty. You do have to pay federal income tax on your withdrawals, as well as state/local taxes (if applicable).

One word of caution - do NOT roll your 401(k) to an IRA, as there is no such provision for IRA accounts. In other words, if you take withdrawals from an IRA you would have to pay the early withdrawal penalty if you are under age 59-1/2.