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Published: May 04, 2023 4 min read
old couple looking through their phone together
Eddie Lee / Money; Getty images

Married couples may be able to save for retirement more efficiently just by taking a closer look at their 401(k) contributions.

While many Americans understand the importance of investing a fraction of their pre-tax income in a workplace retirement plan, it can be hard to know how much you should contribute. That may be especially true if you're married and trying to coordinate two retirements at once.

As a general rule of thumb, it's smart for both spouses to contribute enough to get the entire matches offered by your respective employers. However, if that's not possible, you can likely optimize your retirement planning by focusing on the more favorable 401(k) program. Basically: If you can’t afford to contribute to the point where you get the max match on both plans, just try to hit the full match on the more generous of the two plans instead of contributing a little to each.

According to a new paper, a quarter of U.S. couples could benefit from this strategy. They could be saving roughly $700 extra per year on average by putting retirement funds into the plan with the better match program.

What the research says

The authors — a trio of researchers from Yale University, the Massachusetts Institute of Technology and the Treasury Department — note that a majority of U.S. workers have access to 401(k) plans. More than 4 in 5 of those plans come with some sort of match, meaning that the employer will contribute an amount to the plan provided that the employee puts money into it as well.

But not every match is the same, and that’s where the inefficiencies arise. At the household level, you could be leaving money on the table by not contributing enough to reach the max match on the better 401(k) plan.

"For instance, if one spouse has a dollar-for-dollar employer match up to a cap, and the other spouse has a 50-cents-on-the-dollar match on their retirement contributions, then the efficient allocation at the household level is to fully exploit the match offered to the first spouse before making any contribution to the second spouse’s account," the report explains.

Keep in mind

Why aren’t all married couples optimizing their contributions? One reason may be that they simply don't realize they can accumulate assets this way.

Another may have to do with the structure of the relationship. The report says that “indicators of weaker marital commitment” are correlated with inefficient 401(k) contributions. For example, the research found, couples without kids, a mortgage or a shared bank account are more likely to be making inefficient contributions.

In other words, people may be reluctant to contribute to their spouse’s retirement plan if it means neglecting their own. Or they may consider contributing to their 401(k) plan to be an important protection in the event of a split.

Everyone's situation is different, and if you and your spouse are struggling to plan for retirement, you may want to consult a financial advisor. But from the perspective of what’s strategic for the collective long-term finances of the household, contributing enough to get the max match on the best plan before contributing to the second plan can net a significant percentage of couples several hundred extra dollars per year.

Given inflation and the fact that the amount of money Americans estimate they'll need to retire recently reached $1.25 million, that's crucial.

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