When it comes to retirement plans, 401(k)s are by far the most popular. More than one-third (34.6%) of working-age Americans ages 15 to 64 had a 401(k)-style account as of 2020, according to the most recent U.S. Census Bureau data. That compares to 18% who had an IRA or Keogh account and 13.5% who had a defined-benefit or cash balance plan.
Not everyone who has a 401(k) plan is maximizing their returns, however — especially when it comes to married couples not taking advantage of full employer matches.
A recent blog by the Center for Retirement Research (CRR) at Boston College provided the example of a couple who both work and have identical earnings. While one spouse’s employer matches every dollar of her 401(k) contributions up to a cap, the other spouse’s 401(k) match is only 50%.
As the CRR noted, the couple could increase their retirement savings by contributing first to the 401(k) with the full match. However, according to a 2023 study from the National Bureau of Economic Research (NBER), one in four couples don’t prioritize the more generous employer’s 401(k) matching funds.
By not coordinating their matches, the average couple could be losing nearly $700 a year in 401(k) money, according to the study. That might not sound like a huge sum, but researchers estimate that it represents 13% of average annual contributions. The amount of lost money could be considerable over time when you account for years of foregone matches and the potential loss of investment income.
“In the absence of any coordination, we estimate that the proportion of couples who could similarly increase their saving would be 35%-38%,” the NBER researchers wrote. “Therefore, while a minority of couples achieve efficiency, inefficiency is widespread.”
Only a couple of years ago, the potential lost money was even greater. A 2021 paper from the NBER found that among couples who failed to allocate their contributions to the higher match plan, the average loss was $749 a year, or about 14% of the employee contributions made.
On a more positive note, the longer people in the study were married, the more likely they were to coordinate their matches.
“The strength of marital commitment is associated with optimizing retirement contributions,” the researchers wrote.
The NBER analysis was based on an IRS database of 44 million taxpayers and federal data on roughly 6,200 401(k) and 403(b) savings plans, the CRR reported. The primary focus was on couples who file joint tax returns, with both fully vested in their respective savings plans.
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