Love and money don’t always have a perfect relationship. When couples aren’t on the same page financially, their retirement may pay the price.
For some couples, that price may be steep. According to a NerdWallet survey, 23 percent of Americans whose partners are saving for retirement don’t know how much they’re stashing away. Perhaps the reason is that 30 percent of couples who save don’t talk about how much money they’ll need to retire in the first place.
Poor communication can hinder a couple’s ability to successfully plan for the future, says Lou Cannataro, a partner at Cannataro Park Avenue Financial in New York. When spouses don’t share a united vision for retirement, they can end up with a plan that doesn’t fit their needs. “Marriage is a partnership, and both parties need to be present and aligned with financial success,” Cannataro says.
[See: 10 Tips for Couples and Young Families to Build Wealth.]
By addressing their savings goals as a team from the start, couples are less likely to fall into these common traps that can derail their retirement plans.
A failure to commit. One of the biggest hindrances to investing successfully for the long term is a lack of commitment. Thirty-three percent of the couples in the NerdWallet survey save nothing for retirement. The longer couples delay getting started, the harder they may have to work to catch up.
Most people don’t want to think about retirement, but it’s a topic couples should discuss from day one, as those retirement goals can motivate couples to save, says Robert Baltzell, president of Los Angeles-based RLB Financial.
Along with talking about your objectives, Cannataro says it’s just as important to articulate your fears. A good plan reflects your individual and joint goals and the risk you’re both willing to accept to accomplish them. When couples agree about which direction to take with retirement, it becomes easier to stay the course.
Kimberly Foss, founder of Empyrion Wealth Management in Roseville, California, says couples should concentrate more on saving rather than on any specific amount. When you’re just getting started, what you invest doesn’t matter nearly as much as making regular contributions, she says, and “the best savings program for you is the one you can stay committed to.”
Not saving strategically. Being faithful to your retirement plan is one part of the puzzle. Choosing the right savings vehicles is another. Surprisingly, 31 percent of couples in the NerdWallet survey keep their long-term investments in cash. While cash investments are certainly safe, they’re not designed for growth, which is necessary for a secure retirement.
Thirty-nine percent of couples in the survey who save for retirement use a 401(k) or a similar workplace plan. If you’re both covered by an employer’s plan, you’ll need a strategy for saving.
Josh Jalinski, president of Jalinski Advisory Group and CEO of Wealth Quarterback in Toms River, New Jersey, says the matching contribution will determine how a couple should fund these accounts. For example, if your plan offers a 6 percent match and requires you to contribute 6 percent of your income while your spouse’s plan offers an automatic 3 percent match, Jalinski says it’s better to max out the plan with the higher match first.
Missing the match is costly. Assume you make $50,000 a year and contribute 3 percent of your salary to your plan. Your employer matches 100 percent of the first 6 percent of contributions. If you earn a 7 percent annual return from age 25 to age 65, you’d have slightly more than $621,000 for retirement. If you increase your contributions to 6 percent to get the full match, your savings would double to more than $1.2 million. Multiply that by two, for yourself and your spouse, and the value of the match becomes even more evident.
Individual retirement accounts can add to your savings. Despite the tax advantages IRAs offer, just 25 percent of couples in the NerdWallet survey use them for retirement.
[See: 7 Reasons to Invest in an IRA.]
Whether a traditional or Roth IRA makes sense depends largely on your taxable income. If you’re in a higher tax bracket now, you may benefit more from the tax-deductible contributions to a traditional IRA. If, on the other hand, you anticipate being in a higher tax bracket at retirement, the tax-free distributions a Roth IRA affords may be more attractive. Only married couples whose combined income is $186,000 or less are eligible to max out a Roth.
A spousal IRA is worth considering when one spouse doesn’t work. The working spouse can make IRA contributions on the couple’s behalf, effectively doubling their savings. A taxable brokerage account is another savings option if you’ve maxed out your employer’s plan and an IRA. These accounts don’t enjoy the same tax-advantaged status but they do offer liquidity.
Baltzell says if you’re struggling to save regularly, automating may be the answer by having a percentage of both your incomes deposited automatically in qualified accounts.
Arguments over how to invest. A comprehensive financial plan can minimize disagreements over retirement and investing that can shortchange your savings goals. Jeffrey Corliss, executive director of RDM Financial Group at Hightower in Westport, Connecticut, says this is where a financial advisor comes in handy.
An advisor can act as a mediator to help you flesh out answers to your most important retirement questions and avoid making big mistakes. For example, Corliss says couples should be discussing the feasibility of retiring early versus having to work longer, and when both spouses should begin taking Social Security benefits in retirement. “It can be extremely damaging to the relationship if one spouse thinks they’re going to have to work their entire lives to maintain a certain lifestyle,” Baltzell says.
The NerdWallet survey, for instance, found that 43 percent of couples who invest in a brokerage account don’t consult one another about trading decisions. If one of you is a more aggressive investor and the other is more conservative, an advisor can help you negotiate a compromise that both partners find acceptable.
[See: 8 Things Not to Hide From Your Investment Professional.]
By not accounting for different investing styles, couples might take on too much risk and lose money, or be so conservative that returns are tiny. “You and your honey should both be in on the money,” Jalinski says.
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These Mistakes Cost Couples a Better Retirement originally appeared on usnews.com
