Planning for retirement for two is almost twice as complicated as planning for just one, and it gets especially complex when both spouses are working. Here's how to maximize your retirement savings -- and your returns -- for both yourself and your spouse.
Make it a joint effort
It's vitally important that both you and your spouse know exactly how much each of you is saving for retirement and how you're handling that money. It would be nice if such joint financial decision-making were a priority for everyone, but unfortunately, that's not the case. A NerdWallet survey found that one in five workers whose spouse was saving for retirement didn't know how much their spouse was saving, and 43% of married workers who were saving for retirement didn't consult with their spouse before making investment decisions in their retirement portfolios.
If you don't know how your spouse is making such basic retirement decisions, then you can't make a meaningful plan for yourself.
Use a retirement savings account
That same NerdWallet survey also found that 31% of married workers used a bank savings account to save for retirement. A bank savings account is an extremely bad choice for retirement savings for several reasons. First, you're losing out on the tax benefits that a 401(k) or IRA would give you. Second, you're also losing out on the investment options offered by a retirement savings account. Bank savings accounts may pay interest, but that interest rate is so low that it won't even keep up with inflation; far from growing enough to fund your eventual retirement, that money will lose value. And third, because the money in a savings account is much more accessible than the money in a retirement account, you're far more likely to spend that money early and leave yourself nothing to retire on.
Save enough for two
Most workers should be saving at least 10% of their income for retirement; 15% would be preferable. For couples, that's 10% to 15% for each spouse. In a two-income household, it's not enough for just the primary breadwinner to save 10% of their income; either both spouses need to save a minimum of 10%, or the primary earner needs to save at least the equivalent of 10% of the entire household income.
Decide on single versus multiple accounts
Depending on your situation and preferences, funding one retirement account for both spouses may make more sense than having separate accounts. If one spouse has access to an excellent 401(k) and the other doesn't, then having the fortunate spouse make all the household's retirement contributions into the 401(k) may be the best approach. But if both spouses have 401(k) accounts with company matching, it makes sense to contribute at least enough to max out that free money in each account.
Having a single retirement account for both spouses simplifies retirement planning, as all your retirement savings -- and retirement investments -- are in one place, so you can more easily manage them and keep your portfolio balanced. On the other hand, if you and your spouse part ways, dividing up the money in a single retirement account in a way that's fair for both parties can be extremely difficult. You and your spouse would be wise to sit down with your financial advisor and discuss all of these issues so that you can figure out the best approach.
Choose your investments together
If you and your spouse independently pick investments in separate retirement accounts, then your portfolios probably won't match up very well. For example, one spouse might be investing more heavily in stocks versus bonds than the other spouse, exposing the more conservative spouse to a higher level of risk than he or she is comfortable with. Even if you have separate retirement accounts, it's best to make a mutual decision about which investments to choose so that your portfolios are compatible.
Once you and your spouse have come up with a retirement savings plan, don't assume it's set in stone. It's important to get together at least once a year to assess your accounts, make sure you're on track to save enough, and check your investments to see if they're performing adequately. The family that saves together may not necessarily stay together, but at least you'll both be assured of a comfortable retirement.
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