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Saving for Retirement as a Couple

Unlike bank accounts or credit cards, retirement plans can never be joint. But some couples fall into the trap of saving for themselves rather than for the household, cautions Miriam Cross, Kiplinger’s Personal Finance.

A 2019 study by the Center for Retirement Research at Boston College found that dual-earner couples run into trouble when one doesn't have a workplace retirement plan, such as a 401(k). The spouse with the workplace plan often neglects to save enough for two to live on in retirement, even though the couple has the advantage of two incomes.

"People act like individuals no matter what," says Geoffrey Sanzenbacher, who co-authored the study. His recommendation: Couples should stash a total of 10% to 15% of their household earnings, rather than their personal earnings, in retirement accounts.

Once you and your spouse have worked out how much to save, dig into the strengths and weaknesses of each of your plans.

When Ann Gugle, a certified financial planner in Charlotte, N.C., meets with married clients, she'll scrutinize the summary plan descriptions for each spouse's retirement account. "The summary plan description is often overlooked, but it is a gold mine of information," says Gugle. These documents can be long, so she recommends focusing on the sections that describe your contribution options and matches. For example, one of you may have a less-generous match or access to a Roth option.

After setting aside enough money so that each of you gets the employer match, if any, compare the menu of investment options, fees and any advantageous features to decide how you and your spouse should allocate your income. That's especially important if you can't afford to max out your plans.

Say one spouse has a huge array of investments to choose from and the other has more-limited options. Start by picking the best of those limited funds – even if they are all, say, small-cap stock funds or international stock funds – and fill in the gaps from the other spouse's menu of investments to balance out your overall portfolio.

Consider opening a Roth IRA as well. You invest in a Roth with after-tax dollars, and your money continues to grow and compound free of taxes. Withdrawals are also tax-free once you reach age 59 1/2 and you've held the Roth for five years. If you and your spouse file your taxes jointly, you can each contribute up to $6,000 to a Roth IRA in 2020 ($7,000 if you are 50 or older) as long as your combined modified adjusted gross income is less than $196,000. The contribution limits then start to phase out, before disappearing completely once your MAGI hits $206,000.

You will need to get more creative if only one spouse is working. One option for couples who file a joint return is for the working spouse to open and contribute to a Roth or traditional "spousal IRA" for the nonworking partner.

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