At least 1 in 4 married couples are losing out on free money from their employer's matching contributions because they are failing to coordinate their retirement contributions. The study authors who reported these findings estimate that the average foregone match is nearly $700 annually.
I know you know this, but, as a reminder, the company will only contribute to your retirement if you contribute to your retirement, that is an employer match.
For a thirty-year old married couple, that's over $200,000 of lost free money if their retirement age is 65, assuming the contributions earn the market average.
Such costly mistakes are not insurmountable, so why is such an expensive mistake made by married couples so common?
Building wealth together as a couple means looking at your investments together, which is an act of financial intimacy," according to Ed Coambs CFP®, CFT™.
It's no secret that some folks struggle with talking about money. Being financially intimate can be difficult because of complicated or traumatic experiences with money by one spouse or the other.
“It is essential for couples to intentionally communicate about their finances, ideally at times when emotions are not heightened,” says Michelle Kruger Ph.D., CFP®, Senior Financial Planner at Gratus Capital. “Many couples struggle to communicate about their finances because money conversations can feel uncomfortable or overwhelming and can lead to conflict. One thing that can be helpful in making money conversations a habit is scheduling a set time each week or each month for a financial check-in.”
The authors of the study found that households with weaker indicators of marital commitment, such as not holding joint bank accounts, are less likely to coordinate retirement contributions. This fits the pattern of couples who report being happier in marriage most commonly pool their finances.
And if you're wondering if the choice to hold joint bank accounts boosts marital satisfaction, it does, that is according to recent research. One of the authors of the study, Dr. Jenny Olson of Indiana University, shared on an upcoming episode of the Modern Husbands Podcast that:
When you are more aligned financially, it leads to better outcomes for your marriage.
Coordinating retirement plans to maximize employer matches is a good start. Employees are not limited to contributing to the employer match. In most cases, much more can be invested. Couples can take additional steps toward ensuring a prosperous retirement.
Invest the IRS contribution limits
Investing up to the IRS contribution limit in your 401(k) is a savvy financial move that allows you to maximize your tax-advantaged retirement savings. For example, the IRS contribution limit for employees to a 401k is $22,500.
Consider for Retirement Account Tax Implications
Understand the tax implications of different retirement accounts. Contributions to Traditional IRAs are tax-deductible, reducing taxable income in the current year, while Roth IRAs offer tax-free withdrawals in retirement.
Strategically contribute to retirement accounts to maximize tax benefits. For instance, a spouse in a higher tax bracket may benefit more from Traditional IRA contributions.
Utilize Both Traditional and Roth IRAs
Consider diversifying between Traditional and Roth IRAs depending on each spouse's income and tax situation. This strategy can provide tax flexibility in retirement.
Balance Risk Tolerance and Asset Allocation
Discuss risk tolerance and desired asset allocation as a couple. Diversify investments across various asset classes to manage risk effectively.
Factor in Life Events
Consider upcoming life events, such as buying a home or having children, when determining contribution levels. Adjust investment strategies accordingly to maintain progress toward retirement goals.
Compare Employer-Based Retirement Plan Fees
Evaluate the fees associated with each spouse's retirement plan options. High fees can erode returns over time, so opt for low-cost investment options like index funds or target-date funds.
Thanks to Modern Husband Advisory Board Members Ed Coambs, Dr. Michelle Kruger, and Dr. Jenny Olson for their contributions to this post.
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