If you’ve been married for a few years, you and your spouse have probably figured out which expenses and bank and credit accounts to share and which to keep separate. But when it comes to your big picture finances—such as getting the most out of your retirement plans, coordinating health coverage and lowering your tax bill—the decisions get more complicated. In fact, the strategies that worked best for you as individuals can look entirely different when you approach them as a couple.
In 2008, Scott Godes of Rockville, Md., was working at a firm that didn’t offer a match for his 401(k) contributions. His wife, Deb, did receive a match. Instead of contributing to his 401(k), he used the money to pay off a home equity line of credit the couple had taken to upgrade their home, and she contributed enough to her 401(k) to capture the match. Their goal was to decrease their debts while saving as much as possible, Scott says. “We had to coordinate and recognize that we were doing things differently, but for the benefit of both of us.”
More than 10 years later, both Deb, who works in health care policy, and Scott, now a partner at a law firm, are maxing out their 401(k)s. With the help of their financial adviser, Darren Straniero, they’re balancing long-term savings with shorter-term goals, including shoring up their 529 college saving plans (their older daughter is in high school) and planning a bat mitzvah for their younger daughter.
Save Wisely For Retirement
Unlike bank accounts or credit cards, retirement plans can never be joint. But some couples fall into the trap of saving for themselves rather than for the household. A 2019 study by the Center for Retirement Research at Boston College found that dual-earner couples run into trouble when one doesn’t have a workplace retirement plan, such as a 401(k). The spouse with the workplace plan often neglects to save enough for two to live on in retirement, even though the couple has the advantage of two incomes. “People act like individuals no matter what,” says Geoffrey Sanzenbacher, who co-authored the study. His recommendation: Couples should stash a total of 10% to 15% of their household earnings, rather than their personal earnings, in retirement accounts.
Once you and your spouse have worked out how much to save, dig into the strengths and weaknesses of each of your plans. When Ann Gugle, a certified financial planner with Alpha Financial Advisors in Charlotte, N.C., meets with married clients, she’ll scrutinize the summary plan descriptions for each spouse’s retirement account. “The summary plan description is often overlooked, but it is a gold mine of information,” says Gugle. These documents can be long, so she recommends focusing on the sections that describe your contribution options and matches. For example, one of you may have a less-generous match or access to a Roth option.
After setting aside enough money so that each of you gets the employer match, if any, compare the menu of investment options, fees and any advantageous features to decide how you and your spouse should allocate your income. That’s especially important if you can’t afford to max out your plans. (The limit for 401(k) and most other workplace retirement plans is $19,500 in 2020, with catch-up contributions of $6,500 for those 50 or older.)
Say one spouse has a huge array of investments to choose from and the other has more limited options. Start by picking the best of those limited funds—even if they are all, say, small-cap stock funds or international stock funds—and fill in the gaps from the other spouse’s menu of investments to balance out your overall portfolio.
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