Married couples coordinate countless financial decisions: The mortgage, household bills, vacations, college savings, insurance, taxes. But there is one area many couples may be overlooking: their workplace retirement contributions.
Research from the Center for Retirement Research at Boston College found that roughly one in five married couples fails to fully coordinate retirement contributions around employer matching incentives. Those couples forgo approximately $760 per year in employer matching contributions, on average (Center for Retirement Research). Over time, those missed dollars can add up!
What Does It Mean to Coordinate Retirement Savings?
Coordinating does not mean combining your 401(k)s. Each spouse still has their own employer plan, instead, coordination means deciding how much each spouse should contribute to their respective plan by looking at the household as a whole. The reason is simple: employers offer different matches. One company might provide a relatively generous match on the first portion of an employee’s contributions. The other spouse’s employer may offer a smaller match. The Center for Retirement Research notes that couples can often make better use of a fixed household savings budget by capturing the more generous employer match before directing additional contributions toward the less generous match (Center for Retirement Research).
Equal Is Not Always Optimal
Imagine a couple deciding they can afford to save a certain amount each month. The instinct may be to split those retirement savings evenly between both 401(k)s. But if one employer provides a significantly better matching formula, an equal split could potentially leave employer contributions unclaimed. A better starting point is to understand:
- Each employer’s matching percentage
- How much compensation is eligible for the match
- The contribution required to receive the full match
- Vesting requirements
- Contribution limits
- Investment choices and fees
- Each spouse’s broader tax strategy
Only then can the couple decide how to allocate their available savings.
Think Like a Household
Money can be an uncomfortable topic between spouses. One spouse may earn considerably more, one may take the lead on finances, one may prefer to keep investment accounts highly independent, etc. There is nothing inherently wrong with maintaining individual accounts or different approaches, but retirement ultimately affects the household. If you are planning to retire together, pay bills together, travel together, and file taxes together, it makes sense to at least understand how the two retirement strategies interact. That can mean agreeing on shared goals even if the individual accounts remain separate.
Start With the Employer Match
A useful first exercise is surprisingly simple; sit down together and pull out the summary for each workplace retirement plan. Determine:
- What percentage does each employer match?
- How much does each employee need to contribute to receive the full available match?
- Are both spouses currently receiving the full match available to them?
- If household savings are limited, which matching dollars provide the greater benefit?
- Once both matches are considered, where should additional savings go?
The Center for Retirement Research found that some couples could increase their retirement wealth simply by reallocating their existing savings between their individual workplace plans, without increasing total household savings (Center for Retirement Research). That is what makes the opportunity especially interesting.
Coordination Goes Beyond the 401(k)
The employer match may be the starting point, but a complete household retirement strategy can also consider:
- Traditional versus Roth contributions
- IRAs
- HSAs
- Tax brackets
- Investment allocation
- Social Security
- Pensions
- Retirement timing
- Healthcare
- Beneficiary and estate planning
Two individually reasonable decisions do not always create the best household strategy when combined.
Have the Conversation
You do not need to turn date night into a financial planning meeting, but taking 30 minutes to compare retirement plans and talk about long-term goals could uncover something that has been overlooked for years. Ask:
Are we both maximizing the benefits available to us?
Are we saving toward the same goals?
Do we both understand the plan?
And is our money working together as effectively as it could?
Retirement planning does not have to mean giving up financial independence, it simply means making sure the two strategies are moving in the same direction.
To hear more on this topic, watch the full video here!
