Nearly 1 in 5 Couples Leave Money on the Table in Retirement Plan Matches

Love may make the world go round, but it’s not enough to make the most of your clients’ 401(k) contributions. 

Roughly one in five couples leave employer matching money on the table by not coordinating their contributions to employer-sponsored retirement plans, according to a new study from the Center for Retirement Research. On average, those couples could receive an average of $757 more per year just by moving some savings from the account with the less generous dollar-for-dollar match to the more beneficial one. The researchers looked at regulatory filings and employees’ tax returns and W-2s to analyze roughly 185,000 couples and found that a lack of coordination can cut retirement wealth at age 65 by an average of about $14,000 for all married couples. (That’s nearly enough to cover a full year of health care costs for a couple in retirement.) 

“Retirement feels more personal and individualized than, say, a joint credit card bill might,” said Georgia Lord, a financial planner at Corbett Road Wealth Management. “However, what your spouse contributes affects your joint future equally as much as what you do, and optimizing your household finances requires seeing the whole picture.” 

Better Together 

For many, the lack of coordination may be an accident. An accompanying survey by the CRR asked respondents hypothetical questions about 401(k) planning and found that nearly half who chose not to maximize a match benefit didn’t realize they’d done so. More than a third of respondents where both spouses have a retirement plan hadn’t considered that coordination could mean more money. 

For others, it’s deliberate: 

• Forty-five percent of respondents who picked an allocation that didn’t take advantage of the maximum match said they knew they were doing so. The study suggests the strength of a couples’ marital commitment could play a role, since couples who ended up getting divorced were more likely to have foregone a match. 
• Misunderstandings around what happens to your money after divorce also seem to be a factor. Respondents to the survey who were (mistakenly) under the impression you keep all of your own retirement savings in a divorce were more likely to deliberately pass up maximizing a higher match in a partner’s account. 

The Fix. Lord said she advises clients to treat retirement as a standing agenda item in their financial conversations at minimum once a year, and any time there is a significant change for either partner, such as a new job, move or addition to the family. “The goal is to make coordination a habit rather than a one-off conversation,” she said.