For many dual-career couples, planning for retirement is a crucial aspect of financial management. However, a startling number of couples are making one simple yet serious mistake when investing for retirement.
The study, Efficiency in Household Decision Making: Evidence from the Retirement Savings of U.S. Couples, highlights one simple and costly mistake that is easily correctable:
“A significant portion of couples do not allocate their retirement savings to take full advantage of the higher employer match rates available within the household.”
This inefficiency persists over time and is not merely due to inertia or lack of awareness but often occurs even when couples are aware of the better match options.
The Cost of Misaligned Retirement Contributions
According to the study, about 24% of couples fail to maximize their employer match, which can lead to an average loss of approximately $24,000 in employer matches over a lifetime.
This oversight is the most expensive simple mistake couples make when investing for retirement. The error stems from not coordinating contributions to ensure that each dollar saved is matched as much as possible by employer contributions.
Steps to Avoid This Retirement Planning Pitfall
To help couples avoid this costly mistake and work towards their retirement goals effectively, the following steps are recommended:
Review and Understand Match Policies
Both partners should fully understand their own and their spouse’s employer match policies. Knowing the details can help identify which account should receive more contributions to maximize the match.
Communicate Regularly
Open communication about finances is crucial. Regular discussions about retirement savings and goals can help align efforts and ensure both partners are on the same page.
Related: What is a Money Date?
Create a Joint Strategy
Develop a joint retirement savings strategy that considers the match benefits of both accounts. This may involve adjusting contribution amounts periodically to reflect changes in income, employment, or match policies.
Monitor and Adjust Contributions Annually
Life changes, and so do employment benefits. Review your retirement plans at least annually to ensure you’re still taking full advantage of the available employer matches.
Consult a Financial Advisor
For some couples, navigating these decisions can be complex, especially with different types of retirement plans and fluctuating incomes. A financial advisor can provide tailored advice based on your specific circumstances and goals.
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