Are You Headed Towards This $14,000 Employer Matching Mistake?

So far in your retirement savings journey, your decisions have likely centered around how much to contribute and to which accounts. If your employer offers a 401(k) or 403(b), it’s easy enough to establish automatic contributions, which get pulled directly from your paycheck. Each year, you incrementally increase contributions (and if not, you should consider it), but otherwise keep things chugging along uninterrupted.

Taking a semi “set it and forget it” strategy to saving for retirement is an effective way to build the wealth needed to support your future income needs. It takes friction away from the process, allowing you to effectively “save in your sleep.”

But if you’re married (or will be sometime in the future), recent findings by the National Bureau of Economic Research suggest additional considerations exist. Specifically, coordinating contributions across both spouses’ accounts to optimize employer matching.

In fact, the study finds that neglecting to coordinate could cost couples thousands across their lifetimes.¹

The findings

A recent study from the National Bureau of Economic Research titled “Efficiency in Household Decision Making: Evidence from the Retirement Savings of U.S. Couples,” examined whether married couples make financially efficient decisions when allocating retirement savings between individual accounts. Specifically, the study set out to determine whether couples are maximizing employer matching contributions.

The study found that around two-thirds of couples are not actively coordinating their retirement decisions. As a result, between 19% and 20% of couples fail to fully maximize available employer matches. Those couples leave about $757 per year in “free money” on the table in the form of missed employer contributions.¹

That might not seem like a lot today, but remember: Your retirement savings will grow and compound. The more you contribute, and the earlier you save, the greater the impact compounding will have between now and retirement.

Why is this happening?

The study points to two primary reasons why couples fall short of optimizing their retirement savings: a lack of awareness and/or a preference to manage assets separately.¹

Lack of awareness
Considering retirement plans are often managed individually, some couples simply don’t realize that coordination matters or how to do it.

Each spouse logs into their own account, makes their own contribution decisions, and never steps back to consider how those choices could interact at the household level.

As a result, couples tend to miss important planning details, like figuring out which spouse has a more generous employer match policy and prioritizing contributions based on match structure. Instead, they often assume that if both spouses are contributing, it’s good enough.

Deliberate separation
Some couples choose not to coordinate across accounts for personal reasons, including:

• A desire to keep finances separate
• Limited communication around money
• Concerns about fairness or control
• A lack of trust within the relationship

Another challenge here is that many couples don’t fully understand how retirement assets are treated in a divorce. Some individuals believe they’ll retain control over “their” account, compelling them to prioritize their own contributions over the household’s total benefit. However, 401(k)s, IRAs, and other retirement accounts are typically considered marital assets. This goes for employer matches as well. Anything contributed to the account (whether it comes from you, your spouse, or an employer) may be subject to a division of property during divorce proceedings.²

Why It matters

Couples who are inefficient with their employer matching today tend to retain this inefficiency for years (even decades).

Over a lifetime, the impact of missed employer matches can be significant. The study found that retirement savings could be reduced by about $14,000 on average, or as high as $40,000 for higher-earning couples.¹

The power of compounding savings

The longer the runway towards retirement, the more power every dollar in your savings account has. Your money doesn’t just sit stagnant between now and retirement. Often, it’s invested on your behalf. Target-date funds, for example, are common tools used to grow 401(k) funds in a risk-appropriate manner between when you contribute and when you plan on retiring.

As your initial contributions begin to earn money, it compounds. Future growth then stems from both your original contributions and what’s already been earned. As time goes on, the amount of money earned continues to increase, making your initial contributions exponentially more valuable.

For this reason, even small increases in your retirement savings (say, additional employer contributions) compound across decades to meaningfully increase the amount you have to spend on retirement in the future.

Combining compounding growth with employer matching

Let’s say you contribute $200 to your retirement account each month. Assuming your account earns 6% annually and you saved for 20 years, your $200 a month would equate to $48,000 in contributions, with a total account value of $88,285.42 (including returns and compounding growth).³

Now, let’s say your employer matches contributions at 50%. Without any additional contributions from you, your invested principle would rise to $72,000, with a total account value of $132,428.13. While your employer’s contributions only increased total contributions by $100 a month (50% of your $200), the total value of the account rose by $44,142.71 across a lifetime of saving.⁴

For every dollar of employer matching you’re missing out on, you could be diminishing your future retirement income by more than you realize.

Optimizing your retirement savings strategy

Ideally, couples should allocate savings to whichever spouse has the higher employer match first, as this increases total household wealth at no cost. The study finds, however, that few couples actually do this.

Here’s a simple example of how this could look:

Spouse A earns $80,000 per year and receives a 100% match (dollar-for-dollar) up to 3% of their salary. Spouse B earns $90,000 per year and receives a 50% match up to 6% of their salary.

Breaking it down further, if Spouse A contributed up to the employer matching limit, they’d contribute $2,400 annually (3% of $80,000) and receive a $2,400 match, for a total annual contribution of $4,800.

If Spouse B were to do the same, they’d contribute $5,400 (6% of $90,000) and receive a $2,700 match, for a total of $8,100.

If both spouses can afford to contribute at least enough to capture their full match, that’s ideal—no money is left on the table. This would equal $7,800 per year, or $650 per month in contributions directed from their paychecks.

But if that’s not feasible, prioritizing the account with the highest marginal match would create the greatest long-term impact. In this example, Spouse A’s match is more generous on each dollar contributed, so it could make sense to fully fund up to Spouse A’s match first before allocating additional savings elsewhere (say to Spouse B’s plan).

The importance of alignment ahead of retirement

Notably, inefficiency across retirement accounts was higher among couples who later divorced, and lower among couples who chose to integrate financial decisions and accounts.¹

Beyond the financial benefit of aligning contribution matches, greater financial cohesion can create a positive impact for couples.

As retirement approaches, for example, you’ll have many important considerations to make together. To start, you’ll need to decide when you’d like to retire. Should you retire together, or stagger your retirements to maintain employer benefits and reduce dependence on your portfolio?

Then, you’ll need to consider what you actually want retirement to look like. Do you envision a retirement where you’re traveling the world together? Sticking close to the grandkids? Or maybe, pursuing a “second act” career?

Many couples don’t stop to discuss what each spouse envisions for retirement. This lack of honest conversation could lead to a disconnect or misaligned assumptions.

Coordinating your retirement resources as a couple

Contributing to your retirement accounts is a fundamental first step, but the considerations shouldn’t stop there. If both you and your spouse have access to employer-sponsored retirement plans, review your benefits closely. You may find an opportunity to work together and make the most of employer matching, especially if your ability to contribute is limited.