Married Couples May Be Missing Out on Retirement Savings
Married couples navigate much of their lives together, from major life decisions, family responsibilities, health and aging concerns, and unexpected setbacks.
While saving for retirement can certainly be added to that mix, different benefit packages and match schedules could lead partners to have differing financial motivations. A new study by the Center for Retirement Research (CRR) at Boston College examines how married couples are navigating their own distinctions with retirement planning.
The study, published in the American Economic Review, details what an “efficient” allocation of contributions could look like for a married couple. It considers a couple where one spouse’s employer matches contributions dollar-for-dollar up to a 3% cap, while the other spouse’s employer matches at only 50 cents on the dollar up to 6%. In this scenario, the couple would need to prioritize maximizing contributions on the more generous dollar-for-dollar match, like the plan with a 3% cap, before contributing to the other plan. This approach would avoid leaving money on the table.
The study notes how some of the most influential economic models of household decisionmaking today assume that married couples oversee their retirement savings together to maximize future income. However, using a dataset built by the CRR at Boston College that links approximately 185,000 couples, records contributions, and measures the match schedule of each employer of over 6,000 defined contribution (DC) retirement plans, the study finds that one in five couples fail to take full advantage of their employer match, leaving an average of $757 per year in untapped funds, or 13% of the couple’s total annual contributions to retirement accounts.
At the median, the annual loss is $383, while at the 90th percentile, it reaches close to $2,000. Further, the CRR at Boston College estimates that failing to properly coordinate could reduce retirement wealth at age 65 by an average of about $14,000 for all married couples, and by over $40,000 at the 90th percentile.
This shortcoming isn’t due to inertia or confusion about plan rules, but instead from a lack of proper coordination and financial literacy from both parties, the study finds. Otherwise, among those who have considered managing retirement planning together, some don’t because of concerns over trust and wanting control of their own accounts in the case of future divorce. However, the report notes that since retirement account wealth accumulation during marriage is a marital asset, it will be divided equally if a divorce occurs, regardless of who made the contributions.
These results suggest that households can better coordinate retirement planning. Financial advisors and employers could help couples manage their savings accordingly by alerting them to the benefits of doing so, the CRR at Boston College reports.
“Simply alerting couples to the potential benefits of coordinating their contributions could lead many of them to recover the forgone match,” the CRR at Boston College states. “Employers could incorporate household-level thinking into financial wellness programs, and financial advisors working with married clients could make coordination of retirement contributions a routine part of planning.”
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news.