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Newlyweds: How Should You Save for Retirement?

By Sarah Szczypinski - Feb 17, 2018 at 6:19AM

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Love and money don't always mesh. Here's how to combine your savings.

Joining lives with another person is exciting, but it also involves a lot of work. When it comes to saving for retirement, if you want to enjoy your golden years together, you need to make decisions now that benefit both of you in the future.

Here are three financial steps to take while you're still in the honeymoon phase.

1. Create a (harmonious) household budget 

Combining two independent lives can be tricky, especially if neither of you is very good at budgeting. Only 41% of Americans use a household budget, which might be why one-third of couples argue about money at least once a month, according to an Ameriprise Financial survey. If you're interested in keeping the peace and building marital wealth, then creating a budget is step one. A tangible representation of how your money is spent will help you make more deliberate choices, especially when it comes to savings.

For instance, suppose you want to save 15% of your combined household income of $100,000, or $15,000 a year, for retirement. Stashing $1,250 a month is a tall order, so how will you do it? The best way is to review your budget together and make changes you can both agree on. For example, if your convenience purchases (e.g., take-out food) are out of control, it's easier to cut back if you're willing to hold one another accountable. Remember, the average retired couple needs nearly $750,000 today to get by, and costs will only increase in the future. Plan for security by tackling your budget (more on that here) as soon as possible. 

jar full of cash

Image source: Getty Images.

2. Talk about risk and rewards

As a couple, you might love the same TV shows and crave the same foods, but that doesn't mean your investment styles are in sync. While your spouse might love the idea of playing the stock market, perhaps you'd be more comfortable stashing your cash in a savings account. Investing styles are determined by your risk tolerance, or the level of volatility you're comfortable with when it comes to growing your money. Since you plan to retire together, it's important to sort out your differences early and reach a compromise regarding how to invest your collective cash. Start by taking a risk tolerance quiz to learn where you stand. 

The next step is thinking long-term. You may not realize how much your investment style today will affect your savings as you approach retirement age. Generally, an aggressive investment strategy is likely to yield higher returns than a conservative approach, and choosing your investment goals early could add up to a sizable difference over time. For example, let's assume you save the $1,250 a month we discussed for the next 35 years. Here's what your savings will look like based on your investment style:

Investment Style Annual Return (Average) Balance After 35 Years (Assumes $1,250 Monthly Investment)
Conservative (bonds) 2% $752,400
Somewhat Conservative (mostly bonds and some stocks) 4% $1.1 million
Somewhat Aggressive (mostly stocks and some bonds) 6% $1.7 million
Aggressive (mostly stocks) 8% $2.6 million

Source: Author calculations.

You can't afford to ignore differences in investment styles, and it's crucial to develop a long-term plan. Even if you think you'll have enough cash, consider this: 80% of couples disagree about at least one major factor in retirement planning, according to a Fidelity survey, including the age they want to retire, where they'll live, and whether they'll work. When it comes to retirement, you can't afford to fall short. 

3. Maximize your efforts 

Armed with an ironclad budget and investment strategy, it's time to maximize your savings. So where does the money go? You have a few options.

Employer-sponsored 401(k)s. Tax-advantaged retirement savings accounts can help you grow your wealth faster, and married couples have double the opportunity to cash in. If you and your spouse both have access to 401(k) plans, then you can each contribute up to $18,500 a year (or $24,500 for workers over 50) in pre-tax income, and it's important to keep in mind how employer matching can help your collective efforts.

Let's suppose your employer provides matching contributions on up to 6% of your salary, but your spouse's 401(k) plan does not. If your spouse earns $60,000 a year and contributes 6%, and their investments earn 7% per year, then they'll have about $340,000 in 30 years' time. However, if you contribute the same amount, and your employer matches it dollar for dollar, then you'll wind up with more then $680,000 after 30 years, assuming the same returns. 

There's nothing better than free money, and it's worth maxing out your employer match before saving elsewhere. Consider reworking your household budget to account for these benefits first. For instance, your spouse might hold off on contributing to their own 401(k) plan by opting out of automatic payroll deductions. This strategy will allow you to funnel more of your household income into your 401(k) plan until the matching amount is met.

Roth IRAs. If neither of you has an employer-sponsored savings plan, you can still set up Roth IRAs, which allow each of you to earmark $5,500 (or $6,500 if you're over 50) a year for retirement savings. You'll pay up-front taxes on your contributions, but you can access your funds at any time, for any reason (with the exception of investment earnings held for less than five years), and withdrawals are 100% tax- and penalty-free. If you're hoping for early retirement, Roth IRAs can give you both some flexibility. 

Spousal IRA. Even if only one of you is employed, you can both take advantage of IRA retirement savings. In addition to their own traditional or Roth IRA, an employed spouse may open an IRA in their spouse's name as long as they earn enough income to cover the contributions. The annual contributions are capped at $5,500 a year (or $6,500 if you're over 50), and you must be legally married and file a joint tax return. If this situation applies to you, don't miss an opportunity to double your household retirement savings. 

For many people, marital happiness and financial security go hand in hand. Begin the next phase of life on a positive note by prioritizing your retirement savings and making wise decisions -- together. 

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