Pool your resources, and think like a team.
That’s the advice from a Marketwatch article that says holding retirement assets, like 401(k)s, separately can lead to a couple forgetting to plan how they’ll use those assets as a couple when they retire.
New research from the RAND Corporation, it said, finds that instead of saving as a household project, people’s retirement savings end up in 401(k)s, IRAs and similar vehicles that are held in the name of only one individual.
In addition, researchers find that the household’s retirement assets and contributions are more likely to be in accounts held in the name of the husband or the primary earner, and that the “location of contributions is largely driven by the distribution of earnings within couples...”
It makes perfect sense in the event of divorce, and in some instances in case of death, that assets are held separately. But when it comes to retirement, say the report’s authors—Katherine Grace Carman, an economist at the RAND Corporation and a professor at the Pardee RAND Graduate School, and Angela Hung, the director of the RAND Center for Financial and Economic Decision Making and a senior economist at the RAND Corporation, “the separation of accounts in name may cause couples to treat their accounts as separate, with each spouse making decisions separately.”
With assets held separately, it’s all too easy for spouses to lose track of how much each one has, and how those assets will fit together when they retire.
The authors say, “[O]ne spouse may not be aware of the contributions or assets accumulated in the other spouse’s accounts and this may lead to sub-optimal decision-making, as individuals in a couple may not fully optimize across all available retirement accounts.”
It might, for instance, make more sense for an older spouse with considerable assets to contribute to a Roth or Roth 401(k), lest required minimum distributions in retirement be too high and cost the couple more in taxes than if they’d switched to a Roth.
Or a couple may be so used to thinking of a separate emergency fund account as just that—for emergencies—that they lose sight of it when considering how much in assets they have to draw on in retirement.
Savings decisions need to be jointly made, the authors say; in addition, to optimize retirement planning, couples should “consider the entire household portfolio together, accounting for the characteristics of the retirement accounts, the age of the spouses, and income differences between spouses.”