Many married couples are making subpar retirement choices, study finds

Many married couples are leaving retirement money on the table, according to a new working paper, and those in marriages with signs of trouble are most at risk.

The analysis, conducted by researchers from MIT, Yale University, and the US Treasury and not yet peer-reviewed, found that 24% of married couples fail to allocate funds to the spouse with the highest employer match rate. Four years on, half of those couples are still making that mistake.

The couples who came up short on five metrics gauging marital commitment were more likely to make those poor allocations.

The findings underscore how important it is for couples to compare their workplace benefits offerings every year and maximize their retirement savings.

“By the time you get to retirement, it’s too late to rectify any mistakes,” Cormac O’Dea, an assistant professor at the Yale University Economics Department and one of the study’s authors, told Yahoo Finance.

“In a sense, it’s not something where you get immediate feedback on are you saving effectively,” O’Shea said. “So this is a big financial decision. And so getting it wrong can be quite costly for your living standards in retirement.”

(Photo: Getty Creative)

(Photo: Getty Creative)

‘Meaningful change to your retirement preparedness’

The study, funded by the Retirement and Disability Research Consortium and the Yale Economics Tobin Center for Economic Policy, used regulatory filings from 6,000 retirement plans covering over 44 million employees. According to the study, the researchers specifically drew data from individuals’ tax returns and employer W-2 forms.

The analysis found that couples with poor retirement allocations left roughly $700 on the table per year. While that doesn’t sound like much, “over time that could have pretty significant effects on wealth at retirement,” Taha Choukhmane, who teaches at MIT and one of the study’s authors, told Yahoo Finance.

“Getting an extra $700 from the employer in your 401(k) with compound interest can really create meaningful change to your retirement preparedness,” Choukmane said.

For instance, if you contribute $700 a year to your 401(k) — or about $58 a month — you will make over $46,000 over 30 years at a 5% annual return rate, according to a government compound interest calculator.

Couples can save that money by simply moving money away from one account with a lower employer match rate to the one with the higher match rate.

“That means you don’t need to cut on your spending. You can go to the restaurant as frequently as before,” said Choukmane. “But simply changing the location of your saving from the savings of the spouse with a lower incentive to the account of the spouse with a higher match rate can raise the contribution you get from your employer.”

‘Better conditions for people to cooperate’

Man doing a desperate gesture hidding his face during couple's therapy with a psychologist

(Photo: Getty Creative)

Another finding from the analysis showed a correlation between those with poorer allocations and those weaker marital commitments and vice versa.

The study assessed marital commitment by marriage duration, homeownership, the presence of children, whether the couple had a joint bank account before getting married, and a “divorce event in the near future.”

“What we find is that this seems to really correlate with the strength of marital commitment,” Choukmane said. “If you’ve been married for longer, you own a house together, you have kids together, maybe these are better conditions for people to cooperate, coordinate, talk more about finances.”

‘Live for today, but plan for tomorrow’

The big takeaway for couples is the importance of strategizing together and they may want to seek out a financial advisor to navigate the complexities of retirement planning, said Kevin O’Brien, the founder and president of Peak Financial Services. “An advisor can also look at each spouse’s employer benefits side by side to maximize their finances.”

Retirement planning has gotten more complicated since O’Brien started in the business 34 years ago, he said, and his firm now has departments dedicated to estate planning, tax reduction, investments, insurances, and cash flow management.

“The layperson just doesn’t get an in-depth understanding of all that stuff,” O’Brien said. “And I think it would be hard for them to really maximize the use of all their employer benefits and all the government benefits and retirement plan options that are available to them.”

Post-COVID, O’Brien said he had noticed an increase in short-term thinking with regards to spending. He expressed concern that folks might be prioritizing immediate gratification over long-term planning. He asserted that financial planners could help clients balance the two.

“Live for today, but plan for tomorrow,” O’Brien said. “I think that that’s where a good financial planner can help clarify and eliminate the guesswork as to where they’re heading, what the resources are going to be needed to accomplish their goals.”

Dylan Croll is a reporter and researcher at Yahoo Finance. Follow him on Twitter at @CrollonPatrol.

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