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The analysis, conducted by researchers from MIT, Yale University, and the US Treasury and not yet peer-reviewed, found that 24% of married couples fail to allocate funds to the spouse with the highest employer match rate.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’Dea said. “So this is a big financial decision. And so getting it wrong can be quite costly for your living standards in retirement.”
‘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.”