It’s annual enrollment time!
And here’s a modest proposal regarding the subject:
It is fairly routine, when one spouse has no or poor healthcare coverage with their employer, or is not employed at all, for the other spouse to include her (or him) in his (or her) healthcare plan. Employers sometimes try to limit this by adding a surcharge to the employee’s dependent subsidy if the employee wants to cover a spouse who already has the ability to obtain coverage through her own employer but chooses not to do so because that alternate coverage is more expensive or less generous in its provisions, but just as often that which deters couples from simply selecting the more-generously-provisioned health coverage for both spouses is that employers provide greater subsidies for their employees vs. dependents.
So here’s my suggestion:
What if employers provided the same type of benefit in terms of retirement savings, that is, a sort of “spousal coverage” for retirement plans? What if, for instance, they allowed employees whose spouses did not have access to 401(k) accounts on their own (because the spouse doesn’t work, or works at a small employer, or on a part-time basis), to set up a separate 401(k) under the ownership of the spouse, but with the employee’s paycheck deduction being directed in equal measure to each account, and with the employer’s match split between the two accounts? If the IRS allowed contributions up to the 401(k) maximum for each account individually, this would be a better deal than the current law under which such spouses are limited to IRA contributions (with a further restriction that the household income be under $196,000). To be sure, it would also be beneficial for IRA limits to be increased to the same level as 401(k) contributions, and for maximum earnings limits for IRA eligibility to be eliminated, but even if Congress were to make these changes, might it not still be useful for both spouses to be able to benefit the retirement savings opportunity at one spouse’s employer?
Or is this a solution in search of a problem?
Here’s the background:
When researchers ignore the financial health of couples but look at financial health and needs of men vs. women as individuals, they find that women have, on average, lower retirement savings accumulations, and greater retirement income needs. The Aon study I referenced last week reported account balances of $165,000 for men and $94,000 for women among the employees at the large employers whose data was included in their study. A 2018 Vanguard study based on participants in its 401(k) plans reports average account balances of $126,000 vs. $83,000, and median balances of $33,000 vs. $22,000. And a recent CNN Money report, citing a Student Loan Hero survey, cited the difference between men’s and women’s total retirement savings as $90,000 vs. $46,000.
A recent MarketWatch article, which got me thinking about this in the first place, cited multiple reasons for these differences: women earn less on average, and are more likely to have career disruptions or work part-time to raise children or to care for aging parents. A TIAA study also reports that women are more conservative in their investments, so their account balances grow less over time. And once they reach retirement age, women are more likely to outlive their husbands than the reverse — according to the same TIAA study, 2/3rds of women married at retirement outlive their husband — and face the financial consequences of higher lifetime income needs and medical costs, as well as lacking the sort of unpaid caregiver help that they would have provided for their husbands. What’s more, even though women remain healthy enough to work, and could spend more years building up their account balances, they actually retire, on average, two years younger than men, according to a 2015 study — an age gap that just happens to match the age gap, on average, between wives and husbands.
And patterns around marriage are changing, too. The percent of their adult years that women spend married is on the decline; according to a recent Center for Retirement Research report, when measured as the years from age 20 to age 54 – 60, 77.1% of that time was spent as a married woman, for women born in the pre-war/Depression years compared to 53.9% for women born in the middle of the Baby Boom years. The age at first marriage has increased dramatically, from 20 years old, for women in the 1950s to 28 years old now, according to the most recent Census data. Yet, at the same time, most women do still marry, with 74% of 35-year-olds having been married at least once.
But, when married, couples make financial (and life) decisions as a couple, including whether both spouses continue to work full-time after having children, or whether one spouse leaves the workforce temporarily, or works part-time or at a job which provides work-hours flexibility. In a perfect world, they would make financial decisions with both their needs in mind, including retirement planning that takes into account each’s spouse’s longevity and financial needs. And, in principle, this means that the assets women have available to them, on average, are higher than these statistics show, because of household assets to which their husbands have legal title, in the form of such items as 401(k) or IRA accounts which can’t be jointly owned.
So is this a problem because women in these situations risk the financial losses that come with late-in-life divorce, and because couples don’t adequately plan for the longer average lifespan of women, and because those women who do remain unmarried throughout their life are likely to be poorer during their working years and during retirement? Or is this a problem because policy analysts and journalists and Forbes Contributors can’t measure women’s financial well-being except by looking at assets of which they have direct ownership? Would my proposal for “spousal coverage” in retirement plans (aside from benefits related to tax limits) actually help couples be better prepared for retirement, or would it just improve the metrics that researchers use to assess the situation?
