As they grow older, married couples often talk about what their life together will be like during retirement. But, although both partners may have 401(k) plans, they probably have precious few conversations — if any — about how they'll coordinate their plans to provide the greatest possible retirement resources.
In failing to do so, millions of couples miss out on opportunities to fund their retirement. Managing your own 401(k) plan can be daunting enough. You face many decisions that amount to doing your own financial planning. Coordinating two plans for the best collective outcome is even more complicated.
Yet there are some basic steps couples can take to get started on coordinated 401(k) retirement planning. Start by lining up your plan with your spouse's and looking for needs and opportunities regarding:
|Funding your plans|
Chances are, you and your spouse aren't putting enough money into your plans to pay expenses during retirement because, like many people, you face a conga line of creditors who insist on being paid each month. To be able to contribute more, you should look at your monthly budget and find ways to cut out unnecessary expenses.
Read more: Your 401(k): Why You Shouldn't Go It Alone
|Employer matching money|
If your employer matches your contributions (not all do), then, up to a point, the more you put in your 401(k) plan out of your paycheck every month, the more free money you get and the more money you're investing for retirement. The ideal scenario is for you and your spouse to contribute the maximum allowable amounts each month to save the most for retirement and to get the maximum match from your employers. The next best thing is to get the maximum match even if you're contributing less than the plan allows.
If you're in this category, and most people are, it's critical to find out which of your two employers offers the most favorable matching ratio — for example, dollar for dollar, 50 cents on the dollar, 25 cents on the dollar — and up to what dollar amount. Then concentrate your combined contributions in the plan that provides the greatest match. Otherwise, you're leaving free money on the table.
All too often, couples don't handle their plans this way. Some couples make the mistake of regarding their plans as being interchangeable, so they contribute to one plan — possibly the one that doesn't offer a match — and not the other, which may.
When a couple retires with one combined nest egg, they should be certain that this nest egg has defenses against marauding market shifts. That means that the combined assets of the two plans should be diversified among different asset classes so if one asset class dips in value, the hit to the combined portfolio is less dire. Frequently, individual portfolios aren't diversified enough in and of themselves. When two portfolios are approached in tandem as one nest egg, this can get even worse. If both spouses have too much invested in large companies and these large-cap stocks take a big hit, it could take years or decades for the couple to make up these losses in time to meet retirement goals.
Yet, when plan investment options for two plans are laid side by side, sometimes you may see new opportunities for coordinated asset allocation. For example, there may be far better large-cap mutual funds available in one plan and better small-cap funds in the other.
So you can weight these investments accordingly between the two plans to position for better likely investment returns.
|Plan education and assistance|
By taking advantage of any educational sessions or one-on-one sessions you employer may provide, you can gain knowledge you can apply to both your plan and your spouse's in tandem. Unfortunately, turnout at such sessions and sign-ups for individual assistance is scant, so employees need to wake up and take advantage of this. After all, you and your spouse may actually be paying for this now through your plan fees. If such help isn't available at work, request it. Further, consider engaging a financial planner and going to see them with your spouse to evaluate your plans' asset mix. Some planners are willing to do this on an hourly-fee basis, so you could go in for an occasional checkup to limit your costs.
Couples rarely start work at their respective jobs or retire on the same date, or even in the same month or year. Yet they often approach their retirement planning as though that were the case. Regardless of how well people manage their 401(k) plans, different plans will have different rates of return. Couples should base their estimate of retirement income on realistic projections of where each plan will be. By doing so, you can plan the most advantageous retirement dates for yourself and your spouse.
Fees deducted from your 401(k) plan's investment returns could be far higher or lower than those taken out of your spouse's. All other factors (including employer matching money) being the same, if you can't contribute the maximum to both plans, you should contribute more to the plan with the lowest fees. Because it's difficult to decipher these fees in your monthly account statements, seek help from your employer.
Of course, all of this assumes that you and your spouse will be retiring together. Yet, there's roughly a 50 percent chance that you won't be. If you get divorced, after the lawyers are finished dividing up your marital assets, you should be sure to rebalance your plan assets to provide for your own individual retirement. For example, now you'll have one asset allocation within one plan, rather than across two.
Barring this unforeseeable circumstance, however, you and your spouse should approach your plans just as you approach your retirement: together.
This work is the opinion of the columnist and in no way reflects the opinion of ABC News.
Anthony Kippins is president of Retirement Plan Advisors, Ltd. a Registered Investment Advisory firm that addresses the needs of retirement plans and the employees who invest in them. An Accredited Investment Fiduciary Analyst (AIFA®) with more than 30 years of experience domestically and abroad, Kippins specializes in providing fiduciary advice to retirement plans on governance, investments and educational services. He also advises individual clients on retirement planning and investment management after retirement. Kippins serves as managing director of Institutional Fiduciary Assurance LLC, an organization that provides fiduciary advice to trustees of endowments, foundations, non-profit organizations and charitable trusts. He can be reached at email@example.com.