For client couples who both work, prioritizing the most generous employer 401(k) match is an easy way to maximize retirement savings.
But a new report by the Center for Retirement Research at Boston College found that around 20% of couples leave employer matching money on the table by failing to coordinate their contributions. These couples are foregoing around $760 annually on average.
Additionally, co-authors Taha Choukhmane and Cormac O'Dea found that around half of these cases appear to be accidental.
Advisors say they have seen similar situations play out with client couples they work with. They say providing a complete picture of their financial situation is a helpful remedy to this misalignment.
Helping Couples Zoom Out
Melody Brady, a financial advisor at Forefront Wealth Partners in Dublin, Ohio, said these findings match what she sees with her client couples. The lack of coordination is real, she said, and it's often not intentional.
"It's just that no one's looking at the full picture," she said.
Josh Brooks, founder Exponential Advisors in Weatherford, Texas, is a U.S. Army Reserve Chaplain with 22 years of service and previously worked at Fidelity Investments and Edward Jones. Similarly, he said these findings align with what he sees in military households.
"For example, a service member's Thrift Savings Plan match is steady, but the civilian-employed spouse often changes employers every couple of years as the family moves," he said. "The household ends up with a trail of small 401(k)s and different match formulas that nobody looks at side by side, and the more generous match might get forfeited."
What the study frames as a control problem, Brooks said he sees as a structure problem. He said he works with couples who pool everything, couples who keep accounts fully separate and couples who keep them separate but visible.
"Coordination works in all three," he said. "It does not require merging anyone's money. It requires both spouses to see the whole board and to fund the more generous match first."
Coordination also does not mean doing the same thing, said Brooks. He said he has client couples where one spouse is attacking debt while the other builds the long-term plan.
"That division of labor is still coordination as long as both can see the whole picture," he said.
How Advisors Inspire Coordination
Brady said she pulls the plan documents every time she onboards a client and whenever someone changes jobs.
"You'd be surprised how many clients don't fully understand their own benefits," she said. "I've worked with clients who thought they were getting the match but weren't contributing enough to qualify."
Other clients didn't realize their contributions weren't fully vested yet, so they were about to leave a job and walk away from money that wasn't actually theirs, said Brady.
"Some don't even know their 401(k) has a self-directed brokerage option, which means I can manage a much broader range of investments for them inside the plan," she said.
Ryan Johnson, founder and financial planner at Hundred Financial Planning in Grand Rapids, Michigan, said his approach is less about who has the account and more about the couple's goals.
"We start with our savings goal, and then work from there to determine what accounts we have access to and which ones are most likely to help our goal," he said.
Johnson said he recently worked with a couple where one spouse made $500,000 a year and the other made $30,000 a year. The goal, he said, was to defer as much tax as possible.
"We ultimately had both of them funding their retirement accounts to the max," he said. "The second spouse didn't even end up having a paycheck after contributions and benefit expenses. It was a funny thing to realize, but everyone was on board with the approach, so it worked."
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.