This Retirement Savings Mistake Costs Couples ‘Free Money’

Retirement planning is often seen as a team effort for many married couples. However, when it comes to actually saving for retirement, spouses tend to act independently, potentially missing out on valuable opportunities to maximize their savings. A recent study conducted by the Center for Retirement Research at Boston College revealed that approximately 20% of married couples fail to take full advantage of employer matching contributions in their workplace retirement plans, resulting in an average annual loss of $757. Over time, this missed opportunity can translate into thousands of dollars in lost retirement savings.

The issue lies not in the amount of savings, as around 60% of Americans have some form of retirement savings plan. The problem arises from a lack of coordination in contributions among couples. Jeff Judge, managing partner at Chesapeake Financial Planners, notes that many dual-income couples tend to think about retirement savings individually rather than as a household system.

One common missed opportunity for couples is failing to prioritize contributions to the higher-match retirement account when one spouse has access to a more generous employer match. By directing contributions to the account with the higher match rate first, couples can significantly increase their overall retirement savings. Despite the potential for increased savings, many couples overlook this strategy, missing out on the additional contributions that employers make based on their employees’ savings.

The researchers at Boston College found that couples generally understand the basics of their workplace retirement plans and how employer matching works. However, they may not realize that coordinating contributions across both spouses’ plans can result in a higher total match for their household. Evan Potash, executive wealth management advisor at TIAA Wealth Management, emphasizes the importance of viewing retirement savings as a shared household goal rather than separate accounts.

Financial integration, such as joint bank accounts, mortgages, or children, can play a role in whether couples miss out on employer matching contributions. Couples with stronger signs of financial integration are less likely to overlook this opportunity, suggesting that retirement coordination is part of a broader approach to managing household finances.

In addition to missing out on free money, failing to coordinate retirement savings can lead to broader financial blind spots. Potash explains that assets accumulated during a marriage are typically considered joint assets in the event of a split. Furthermore, retirement decisions can impact the household as a whole, affecting tax-saving strategies and future financial planning.

To coordinate retirement saving without sacrificing independence, couples can prioritize maximizing the more generous match first and then directing additional savings to the second account. This approach allows each spouse to maintain their own accounts, beneficiary designations, and contribution decisions while optimizing their overall retirement savings. Regular financial checkups with your spouse, especially during tax season, can help assess contributions, track progress, and make necessary adjustments to meet retirement goals.