Because Millennials tend to marry later than previous generations, the Center for Retirement Research at Boston College (CRR) decided to find out what impact this fact has on saving in defined contribution plans like 401ks, and what that might mean for Americans’ retirement savings if the trend toward marrying later were to continue.
An April CRR research brief by Geoffrey T. Sanzenbacher and Wenliang Hou, “Do People Save More After They Marry?” found people do indeed increase both their participation in and their contributions to 401k plans after marriage, but the study concludes the net effect on retirement wealth by delaying retirement saving until marriage is likely to be small, and solutions for the issue exist.
“Features like automatic enrollment and automatic escalation are becoming more common and can start people on the right track before they hit milestones like marriage that may cause them to start thinking about retirement,” the brief says. “Financial education could also play a role, with employers and 401k providers perhaps stressing the importance of an early start in accumulating enough resources for retirement.”
The study found men respond slightly more to tying the knot than women in terms of participation. Men have lower participation rates than women before marriage (38% for men vs. 41% for women), but they end up at the same level (43%) afterwards.
After, women increase their contribution rate by an average of 0.8 percentage point (from 4.8% before to 5.6% after) compared to only 0.3 for men (from 5.2% to 5.5%).
Millennials marrying later
Delaying marriage is much more common among Millennials than Generation Xers and Late Baby Boomers. According to a New York Times article, the median age of marriage has risen from 23 in 1970 to 29.5 for men in 2017 and from 20.8 in 1970 to 27.4 for women.
The CRR study cites a statistic that at age 30, just 41% of Millennial men were married compared to 59% for the Late Baby Boomers.
While the overall trend in age at first marriage is clear, the CRR brief says its implications for a decision about whether and how much to save for retirement are less clear.
“On the one hand, a robust literature has shown that marriage tends to kick start saving for a house as individuals combine their possessions and make plans for having kids,” the brief states. “On the other hand, the decision to save for retirement may be different. Since retirement is so far off in the future, marriage does not necessarily serve as a trigger event for focusing on retirement saving.”
To answer the question of how marriage might affect contributions to defined contribution plans (which are primarily 401ks), the researchers first compared, separately for men and women, the likelihood of contributing to a 401k account in the years before marriage to the years after marriage over the five-year window, as well as the average contribution rates in the years they contributed.
The second step used a regression to control for demographic characteristics of individuals, to ensure that any relationship being picked up is due to the occurrence of marriage and not some other factor.
A final question is what the results mean should the trend toward later marriage continue.
The brief illustrates this impact by looking at how much retirement wealth accrued in 401k plans by age 65 would have been affected if men and women married five years later than they do today.
The effect of delay, while statistically significant in the regression, is small—a 3.1% decline in accumulated assets for men and a 3.4% decline for women.
“So while the delay in marriage may be problematic for some forms of savings—delaying homeownership for example—it seems unlikely to make a large dent in retirement savings,” the brief concludes.