The #1 401(k) Mistake Married Couples Make

In an ideal marriage, both spouses want the best for each other. This includes a comfortable retirement.

Unfortunately, there is one 401(k) mistake married couples make without even realizing they are doing it. 

It may seem small, but it can make a big impact on your retirement future. 

The mistake? Not communicating and clearly deciding how to deal with your 401(k) company match. 

A recent study found 1 in 4 couples fail to take full advantage of company matching contributions to 401(k) plans.¹ 

This oversight is costing them nearly $700 a year. 

According to the paper titled “Efficiency in Household Decision Making: Evidence from the Retirement Savings of U.S. Couples,” released in April 2023 by the National Bureau of Economic Research, “These couples could increase their retirement wealth without changing their consumption (or increase their consumption at no cost to retirement wealth) by simply reallocating existing contributions from the account of the spouse with a lower marginal match incentive to the account of the spouse with a higher marginal match incentive.”² 

If married couples took time to communicate and reallocate their 401(k) retirement plans, they could save more for the future without having to change their current lifestyle.

Not All Company Matches Are Created Equal

A typical 401(k) match may be around 3% – 6% of the employee’s salary. 

This means that if you contribute up to your company’s match, you will receive that same amount back into your retirement plan from your employer.

It is free money, which is why you should strive to contribute enough to receive the company match. 

However, not all 401(k) plans are created equal – and that includes company matching. 

Some companies offer a dollar for dollar match, otherwise referred to as a 100% match, or full match. 

With this type of match, your employer matches your entire contribution up to a certain amount.

Other companies may offer partial matching. This is when your employer matches your contributions up to a certain percentage. 

Understanding your 401(k) plan’s matching type is important whether you’re married or single.

But, as you’re about to find out, it’s critical for married couples – unless you want to leave money on the table.

The 401(k) Mistake Married Couples Make

So, what do you do when you become two instead of one? What do you do about the company match?

This is where married couples start losing out on retirement savings.

Couples mistakenly allocate their funds and savings.

For example, one spouse invests in the 401(k) plan, always meeting the company match.

The other spouse takes care of household bills and leaves the 401(k) plan and retirement up to the spouse.

It seems like an okay plan…unless you are contributing heavily to the 401(k) plan offering the lower company match.

As Niv Persaud explains to USA Today, “My income was going toward our expenses, and he was going to focus on retirement. And I had a great company match, and I didn’t pay attention to that.”³

Unfortunately, Persaud’s marriage ended, and she discovered just how much retirement savings she lost.

Even if you aren’t worried about divorce, failing to maximize each other’s 401(k) company matches may have big repercussions.

The “Efficiency in Household Decision Making: Evidence from the Retirement Savings of U.S. Couples” study found, “Exploiting differences in matching incentives across employers, we find that a quarter of couples could increase their total retirement saving, by an average of nearly $700 per year, simply by reallocating some of their existing contributions to the account of the spouse with a higher marginal employer match rate.”⁴

Contribute to Your 401(k) the Right Way

The Efficiency study makes it clear that couples do not have to come up with new saving strategies to save an average extra $700 a year.

The study found that couples should simply reallocate their contributions to whichever 401(k) employer matching contribution is better.

Again, all 401(k) plans are not created equal. 

Take a close look at your company’s plan and your spouse’s plan to determine which plan has the better company match. Then, reallocate accordingly.

If you and your spouse aren’t sure about how to reallocate, speak to a financial advisor.

Communicate and Communicate Some More

While the common 401(k) mistake married couples make is not allocating their investments according to their company match, they also make communication mistakes.

Money is the number one issue couples fight about.⁵

Instead of fighting over money, put all your cards on the table.

Openly discuss your finances and financial situation with your spouse.

Talk about how you envision retirement and how you plan to make that vision come true.

Work together to make your retirement dreams come true. 

According to the Efficiency study, “The strength of marital commitment is associated with optimizing retirement contributions.”⁶

Financial communication is essential to the health of a marriage – and your future.

Have questions about your 401(k) performance? Book a complimentary 15-minute 401(k) Strategy Session with one of our advisors. 

Book a 401(k) Strategy Session

Sources

1. https://www.nber.org/system/files/working_papers/w31195/w31195.pdf
2. https://www.nber.org/system/files/working_papers/w31195/w31195.pdf
3. https://www.usatoday.com/story/money/2023/10/22/how-1-in-4-couples-is-giving-up-free-money-in-their-401-k-plans/71225707007/
4. https://www.nber.org/sites/default/files/2023-05/NB21-11%20Choukhmane%2C%20Goodman%2C%20O%27Dea%20FINAL%20-%20cleared..pdf
5. https://www.ramseysolutions.com/retirement/marriage-investing
6. https://www.nber.org/sites/default/files/2023-05/NB21-11%20Choukhmane%2C%20Goodman%2C%20O%27Dea%20FINAL%20-%20cleared..pdf

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