Equalizing retirement accounts with spouse

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SilverGuitar
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Equalizing retirement accounts with spouse

Post by SilverGuitar »

Hi all, I've been pondering this idea for some time and am seeking input on how best to go about it.

I'd like to figure it out so my wife and I have roughly equal retirement accounts. It's complicated because she's a teacher who participates in the state teacher pension system (roughly 10% of each of her paychecks goes into this), so she won't need as much in her Roth and rollover IRA (from a previous job) as I would in mine, if we're trying to keep things equal. Because I won't have a pension. So in theory, we should be putting more money into my retirement accounts (401k + Roth) than into her retirement accounts (Roth), because she's already got about 10% of her paycheck going into her pension.

First of all, is this a silly goal to try and achieve approximately even balances between retirement balances? As in, we're married and our finances are totally combined, so even if one person's retirement check is bigger than another's, it will all be going into the same pot. Or is it a worthwhile endeavor, just to ensure that we're both on even footing in case something bad happens? For reference, we're both in our mid-30s.

Second, are there any calculators out there to help with this, i.e. to find out the equivalent dollar amount of a 401k/Roth IRA account when compared to a pension fund? Like if a pension fund might be paying $50k a year in perpetuity, what would that equate to in a 401k or Roth IRA balance? And how does that relate to how much we're contributing currently?

At first glance, I might have said "We want to contribute 15% of our incomes into retirement. In my case, I'm simply putting 15% of my income into 401k & Roths. She's putting 10% of her paycheck into her pension automatically, therefore if she just puts 5% more into her account, that will be equal to mine." But I'm sure it's not as simple as this. Because our "balances" at retirement will probably be way different, even if we're each contributing 15% of our similar salaries toward pension/retirement, because the pension system is way different from how a 401k/Roth might grow and be calculated.

Hope this makes sense. Would love to hear what others think. Thanks in advance!
runner3081
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Re: Equalizing retirement accounts with spouse

Post by runner3081 »

I personally think you are over complicating things. Not everything has to be fair/even.

If you remain married, it won't matter - just draw as appropriate from all accounts.

If you divorce, the state and attorneys will help you out with things :)

My wife hasn't worked for years, but I would never expect our contributions or balances to be the same, either way. One family goal is all we would be working to hit.
fyre4ce
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Re: Equalizing retirement accounts with spouse

Post by fyre4ce »

runner3081 wrote: Fri May 21, 2021 4:26 pm I personally think you are over complicating things. Not everything has to be fair/even.

If you remain married, it won't matter - just draw as appropriate from all accounts.

If you divorce, the state and attorneys will help you out with things :)

My wife hasn't worked for years, but I would never expect our contributions or balances to be the same, either way. One family goal is all we would be working to hit.
+1

Legally, it shouldn't matter. In fact, one of the "benefits" of marriage is that it removes the need to worry about things like this. Like it or not, marital assets will be divided according to state law if you get divorced; just because an account is in one person's name doesn't mean they get to keep it in a divorce.

If you're talking about inheritance, typically, if you have kids, spouses prefer to leave assets to the other spouse, so that if they die the other spouse can use the money to care for the kids. If you don't have kids, or have kids with a parent other than your spouse, things can get more complicated. In any case, trying to disinherit your spouse by listing someone else as the beneficiary doesn't usually work as expected; the surviving spouse can make a claim on at least part of the assets, depending on state law. And I think 401k's require you to leave all money to your legal spouse, unless they sign a waiver.

What are you hoping to accomplish by equalizing retirement balances? Almost surely you'll do better to think of it as a single pot.

Regarding the equivalence between 401k/IRA money and a pension, the analysis is not so simple. One way to compare an annuity with a lump sum is to look at the price you can buy a SPIA for. This website gives quotes on SPIAs. A 65 year old female in NY gets a rate of 5.44% on a lifetime-paying SPIA. So, a reasonable value for a $50k/year pension starting at 65 is ~$919,000 ($50,000 / 5.44%). But, you also have to factor in the growth between today and retirement. Dollars invested today in a defined-contribution plan like a 401k will be more valuable if the market performs really well between now and then. But if the market does poorly, it's better to invest in a defined-benefit plan, because the market risk is on the pension provider.

In your case, does your wife have an option of how much to put into the pension plan? (eg. X% of salary today gives y% of salary as pension, etc) If not, I'm not sure trying to value the pension is going to help you, because what decisions will that value help you make? If she does have a choice between "investing" in a defined-contribution 403b and a defined-benefit plan, and you can't max out both, then yes, a thorough analysis would be needed.
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celia
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Re: Equalizing retirement accounts with spouse

Post by celia »

Equalizing your retirement incomes is not what matters. In the end, the survivor of the two of you will get all that is left over. :oops: And it is rare that both spouses earn the same and have the same retirement income. So what?

To help you better plan for retirement and see if you should start up another income stream for retirement, why don't you get specific numbers as if you were age 62 now. Then repeat in 5 years. Have her ask her employer or teacher's union how her pension will be calculated. It is often that her age plus years of service have to add up to something like 55, then she will get a certain percentage of <some number>. If they add up to 60, she will get a higher percentage of that number, etc. In effect, the more years she works for the same district/state, she will get more than if she had worked half those years in state A and half in state B.

Also find out how your 401K turns into an income stream in retirement, should you decide to take it like a pension instead of as RMDs.
lazynovice
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Re: Equalizing retirement accounts with spouse

Post by lazynovice »

Have you agreed that you can only retire if you can replace your income? If not, then I think it is not a worthwhile goal. You should be optimizing your combined financial position.

Her pension may be worth far less if she elects an option that increases her payment but dies with her. Or if she changes jobs again. How are you thinking through those scenarios? Your social security PIA’s may be very different. One of you may reach RMD age sooner than the other. Your company’s bond fund may be worse than what she can get in her IRA. One of you is going to turn 50 before the other and qualify for catch up contributions first. There is plenty to mess with besides this and plenty of inequality between accounts.
Luckywon
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Re: Equalizing retirement accounts with spouse

Post by Luckywon »

This is not answering your question but to what extent are you not maximizing your combined 401k contributions? Because it may be best to focus on doing that, if possible. And are you electing Roth 401k contributions in favor of pre-tax contributions? If so, how did you reach the conclusion this is advantageous for you?
Last edited by Luckywon on Fri May 21, 2021 6:56 pm, edited 1 time in total.
tonyclifton
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Re: Equalizing retirement accounts with spouse

Post by tonyclifton »

Maybe you could do equal contributions? For example if you contribute $6000 to a Roth IRA and your spouse also contributes $6000. Or if you contribute $19500 to your 401k and she contributes $19500 to her 457b. Or whatever amounts are doable. That way you are equally contributing and using up tax advantaged space.

Also, you may want to double check her pension contributions and include her employer contributions. For example if she is contributing 10% her employer may be contributing 15%. Also, with the pension it could be that her pension payout exceeds the value of the pension if it were turned into an annuity.

My spouse is also a teacher and we are contributing fairly equally to tax deferred accounts. I had a head start so my 401k is bigger than her 457b. Our Roth IRAs are nearly the same due to equally contributing to essentially the same funds.

I’d also suggest being transparent about the balances and looking at the grand total of everything combined. That way it is an “us” instead of “me” and “you.”
Mike Scott
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Re: Equalizing retirement accounts with spouse

Post by Mike Scott »

You should be optimizing your combined financial position.
+1
sailaway
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Re: Equalizing retirement accounts with spouse

Post by sailaway »

Mike Scott wrote: Fri May 21, 2021 6:54 pm
You should be optimizing your combined financial position.
+1
Another vote for this option.
uslee2004
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Re: Equalizing retirement accounts with spouse

Post by uslee2004 »

DW already has MBDR option at her employer. Thus she contributes more than I do.
uslee
Freetime76
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Re: Equalizing retirement accounts with spouse

Post by Freetime76 »

My spouse and I have had wildly differing incomes, periods of unemployment (aka unpaid sabbatical :D), different starting points when we got married.

1. We don’t equalize anything. It’s not practical, and maybe not even feasible.
2. We look at all our various accounts as a unit and plan using all of them (strategy takes all into consideration, not that every account has identical investments in it).
3. The one thing we try to do is max out both of our Roth IRAs each year ( not available through work). This is nearly a do or die for us. The rest fluctuates.
Please spell out new acronyms. Thank you.
Adfmacro
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Re: Equalizing retirement accounts with spouse

Post by Adfmacro »

I would suggest looking at how things would be if one spouse passes away before the other. Will the survivor be hurt financially if a pension does not have survivorship and will that change require preplanning? In that situation both income and tax rate can change for a double hit of lower income and higher taxes. If it will not be a financial burden, then I see no need to try to equalize it financially, but there might be other reasons to do so.
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Doom&Gloom
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Re: Equalizing retirement accounts with spouse

Post by Doom&Gloom »

sailaway wrote: Fri May 21, 2021 7:00 pm
Mike Scott wrote: Fri May 21, 2021 6:54 pm
You should be optimizing your combined financial position.
+1
Another vote for this option.
+3
As Taylor (I think) used to post here, there are many roads to Dublin.

DW & I may have as different retirement accounts as anyone on BH. We maintain separate finances, largely due to our different views on topics such as this.

DW retired with a decent pension ~15 years ago, but is not yet eligible for SS. She has no retirement accounts to speak of at all. I have a much smaller pension but have decent retirement accounts.

We have taken the approach of ensuring that either will be ok if the other dies first and at any given time. I think that we have achieved that goal with our retirement and estate plans. We almost certainly could have done better, but not without at least one of us having hard feelings. Caveat: divorce, etc could drop a hand grenade into the mix for others, so do not try our approach at home without adult supervision.
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willthrill81
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Re: Equalizing retirement accounts with spouse

Post by willthrill81 »

SilverGuitar wrote: Fri May 21, 2021 2:16 pm I'd like to figure it out so my wife and I have roughly equal retirement accounts.
I cannot fathom why this would be important.
“Good and ill have not changed since yesteryear; nor are they one thing among Elves and Dwarves and another among Men.” J.R.R. Tolkien, The Lord of the Rings
sailaway
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Re: Equalizing retirement accounts with spouse

Post by sailaway »

willthrill81 wrote: Fri May 21, 2021 9:36 pm
SilverGuitar wrote: Fri May 21, 2021 2:16 pm I'd like to figure it out so my wife and I have roughly equal retirement accounts.
I cannot fathom why this would be important.
Psychology. "Fair" is a nebulous thing, perfect for making life complicated.
wineandplaya
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Re: Equalizing retirement accounts with spouse

Post by wineandplaya »

I'm trying to equalize retirement accounts with my spouse since we plan to retire overseas. "Married filing jointly" is not possible or is very disadvantages in many countries in Europe. So if one spouse ends up in a very high tax bracket and the other in a low, you'll pay more taxes in total.
startwithtruth
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Re: Equalizing retirement accounts with spouse

Post by startwithtruth »

This might not be an issue for OP (or for most bogleheads), but when it comes to Medicaid coverage for long term care, it's not ideal to have the vast majority of retirement savings in one person's name. Most of our qualified retirement savings are in my husband's name and my understanding is that if he ended up in long term care for many years, it could be more difficult for me financially as the state would treat his 401K as belonging to him. Apparently if the situation were reversed, it would be easier for my husband; something about persuading a judge to rule that some/all of his 401K savings were intended for his care, and so more of those funds could be protected from being spent on my care.

I'm sure this would vary by state and a trust could make this less of an issue. We worked with an elder law attorney on our wills; a trust seemed like overkill with the size of our assets (and Miller trusts aren't a thing here in Michigan).
terran
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Re: Equalizing retirement accounts with spouse

Post by terran »

The "something bad happens" comment makes me think death (in which case the other spouse can inherit retirement accounts as if they were there own, although you should look at the pension rules) or divorce (in which case a Qualified Domestic Relations Order can be used to split the accounts evenly or however you agree). I would focus on contributing the accounts with the best tax advantages and best investment options, and to the extent possible most likely max everything out before investing in a taxable account.
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teen persuasion
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Re: Equalizing retirement accounts with spouse

Post by teen persuasion »

I'm trying to shift our retirement assets to be more even - they will never get anywhere near even, but I'm trying to nudge the balances to more even. Biggest reason is for state taxes.

Our state exempts the first $20k of retirement income like IRA withdrawals (we have no pensions) from taxation, per person. It's not combineable, though. If all traditional IRA balances/withdrawals are in DH's name, we only get $20k + $16k standard deduction as state tax free. If I have traditional IRA balances/make withdrawals in my name, too, we get up to $20k + $20k + $16k state tax free. Social security is also state tax free.

I was SAHM for many years while DH was sole earner (401k contributions in his name only, IRAs for both are Roth). When I rejoined the working world, my employer had no retirement plan. I've just gotten access to a SIMPLE IRA in the last 18 months or so; I'm contributing as much as possible to mine, and have reduced his contributions to compensate. He's retiring this year, but I'll continue working and contributing in my name to hopefully build up enough of a balance to utilize the state tax exemption. We will also be Roth converting his accounts a bit at a time, both to gain access to his funds pre 59.5, and to reduce his traditional balance before RMDs. All bonds are in his tIRA, stocks in our Roth IRAs and my SIMPLE IRA, to slow growth in his tIRA but encourage greater growth in the others.

We are common potters, look at the combined balances for the big picture. But there is definitely a cost to having lopsided retirement account balances in our state.
Nate7out
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Re: Equalizing retirement accounts with spouse

Post by Nate7out »

SilverGuitar wrote: Fri May 21, 2021 2:16 pm Hi all, I've been pondering this idea for some time and am seeking input on how best to go about it.

I'd like to figure it out so my wife and I have roughly equal retirement accounts. It's complicated because she's a teacher who participates in the state teacher pension system (roughly 10% of each of her paychecks goes into this), so she won't need as much in her Roth and rollover IRA (from a previous job) as I would in mine, if we're trying to keep things equal. Because I won't have a pension. So in theory, we should be putting more money into my retirement accounts (401k + Roth) than into her retirement accounts (Roth), because she's already got about 10% of her paycheck going into her pension.

First of all, is this a silly goal to try and achieve approximately even balances between retirement balances? As in, we're married and our finances are totally combined, so even if one person's retirement check is bigger than another's, it will all be going into the same pot. Or is it a worthwhile endeavor, just to ensure that we're both on even footing in case something bad happens? For reference, we're both in our mid-30s.

Second, are there any calculators out there to help with this, i.e. to find out the equivalent dollar amount of a 401k/Roth IRA account when compared to a pension fund? Like if a pension fund might be paying $50k a year in perpetuity, what would that equate to in a 401k or Roth IRA balance? And how does that relate to how much we're contributing currently?

At first glance, I might have said "We want to contribute 15% of our incomes into retirement. In my case, I'm simply putting 15% of my income into 401k & Roths. She's putting 10% of her paycheck into her pension automatically, therefore if she just puts 5% more into her account, that will be equal to mine." But I'm sure it's not as simple as this. Because our "balances" at retirement will probably be way different, even if we're each contributing 15% of our similar salaries toward pension/retirement, because the pension system is way different from how a 401k/Roth might grow and be calculated.

Hope this makes sense. Would love to hear what others think. Thanks in advance!
I recommend you consider things on a household level, rather than in buckets as individuals. Her pension is an income stream that reduces the income needed from assets to cover your expenses when retired. You should still accumulate those assets in the most tax efficient manner, regardless of whose name is on the bucket. For example, my wife is a teacher with a generous pension. We max both of our Roth IRAs, her 403b and do taxable; I don't have a 401(k). Roughly 50% of her check goes into 403(b) contributions. We are living off of my income and putting more of hers into 403(b). It would be a mistake to only put 15% into her 403(b), skip her Roth and put the rest all into taxable because it's "fair". Mistake meaning that our net worth in 20 years would be much less if we allocated equal percentages from each of us into retirement/taxable accounts. Lower net worth translates into a lower future income stream - that's not fair to anyone! Our net worth in 20 years will be much higher by filling tax advantaged accounts as they are available ignoring "fairness".

This 50% reduction in my wife's paycheck does not mean she has less money to spend (the inverse of your fairness scenario)- we have a joint account where she has equal access to all liquid funds.
Last edited by Nate7out on Sat May 22, 2021 8:15 am, edited 1 time in total.
dcabler
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Re: Equalizing retirement accounts with spouse

Post by dcabler »

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ResearchMed
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Re: Equalizing retirement accounts with spouse

Post by ResearchMed »

runner3081 wrote: Fri May 21, 2021 4:26 pm I personally think you are over complicating things. Not everything has to be fair/even.

If you remain married, it won't matter - just draw as appropriate from all accounts.

If you divorce, the state and attorneys will help you out with things :)


My wife hasn't worked for years, but I would never expect our contributions or balances to be the same, either way. One family goal is all we would be working to hit.
[emphasis added]

The bolded section above pretty much sums it up IF you are planning a life as a couple and also if you will not be earning exactly the same amount throughout life.

One of you might have a lower paying job and both of you agree that the jobs that you each have are "good ones", jobs that fit you, etc.
Or one spent more time helping with children or an aging parent, or one enjoys cooking more while the other can't tear themselves away from doing a bit more consulting in the evening. (This *definitely* happens! :wink: It can and has gone both ways in different years, etc.)

And IF things don't work out, yup, there will be ample "legal assistance" to divvy it all up.

One of the only exceptions is if one of you has an inheritance or substantial assets coming into the marriage. IF that partner wants to preserve those funds for "self" in case of such a need, then keeping the money totally separate and/or a pre-nup would be the way to go.
However, neither of those were mentioned by OP.

But let's back up.
WHY is this of such importance to both of you (it is both, right?)?
If there is some special reason (such as an inheritance), then explaining that would allow us to give more informed suggestions.

RM
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Squirrel208
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Re: Equalizing retirement accounts with spouse

Post by Squirrel208 »

SilverGuitar wrote: Fri May 21, 2021 2:16 pm First of all, is this a silly goal to try and achieve approximately even balances between retirement balances?
Yes.
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Lee_WSP
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Re: Equalizing retirement accounts with spouse

Post by Lee_WSP »

IANYL,
If you divorce, your retirement accounts will be split equitably according to state and federal laws. If you die, a good estate plan is what you need because if you don't write one, you get the state's default version. If you have some sort of medical condition that requires a Medicaid trust, that would invilythe services of an elderly law lawyer.

In all other respects, I think it's obvious that staying married will have no real practical effect regarding whose name is on which account. Unless you two have an odd prenuptial or post nuptial agreement.
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SilverGuitar
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Re: Equalizing retirement accounts with spouse

Post by SilverGuitar »

Thanks for all of this amazing input, Bogleheads! This question probably partly comes out of ignorance, in wondering whether there is a need or reason to be "fair" and "equal" with our accounts. My main takeaway at this point is that it doesn't generally matter when we've got combined finances, and the best thing to do is invest in the smartest ways possible regardless of who's name it goes under. So prioritizing lowest fees and best returns. If there's a divorce (hoping there never will be!), then things will be split up anyway.

In our case, this would probably be the ordering of priorities:

1. Max my 401k with match (doing).
2. Max her HSA (doing).
3. Max our Roth IRAs (don't have enough yet, though there is an inheritance coming that could fund these for a few years).
4. Max my wife's optional retirement plan (outside of her pension), which has better investment options than my 401k.
5. Max my own 401k. Options not as good as hers, but it's still obviously tax-advantaged.
6. THEN - consider taxable investments.

Sounds like the pension calculation could be tricky and maybe not worth it. We'll simply focus on which investments will earn the most for us combined, regardless of whose name is on them to begin with.

I'm intrigued to learn more about the implications of disparities in retirement with regards to Medicaid coverage for long-term care...
vested1
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Re: Equalizing retirement accounts with spouse

Post by vested1 »

My wife retired 7 months before I did and had a smaller 401k than me. She took a pension and I took a lump sum retirement from megacorp as well. The only thing my greater balances were good for was bragging rights and the opportunity to point out to her (sarcastically) that I was a better provider.

In reality, the existence of her 100% survivor pension and the ability for me to take spousal benefits on her age 65 SS filing at my FRA with a restricted SS application ensured our success in retirement, and made it possible for me to delay my own SS until age 70, resulting in our fixed income covering all expenses with no need to withdraw from the IRAs, other than for extras that were icing on the cake.

Please don't tell her that she made all this possible. My deception should last at least another couple of years before she catches on and turns the tables on me. :twisted:

Marriage is a partnership, but it's also amusing to occasionally engage in a mock competition to keep things interesting, as long as you let the other party in on it at some point. Going on 30 years of marriage and looking forward to the next 30.
lazynovice
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Re: Equalizing retirement accounts with spouse

Post by lazynovice »

vested1 wrote: Sat May 22, 2021 2:28 pm My wife retired 7 months before I did and had a smaller 401k than me. She took a pension and I took a lump sum retirement from megacorp as well. The only thing my greater balances were good for was bragging rights and the opportunity to point out to her (sarcastically) that I was a better provider.

In reality, the existence of her 100% survivor pension and the ability for me to take spousal benefits on her age 65 SS filing at my FRA with a restricted SS application ensured our success in retirement, and made it possible for me to delay my own SS until age 70, resulting in our fixed income covering all expenses with no need to withdraw from the IRAs, other than for extras that were icing on the cake.

Please don't tell her that she made all this possible. My deception should last at least another couple of years before she catches on and turns the tables on me. :twisted:

Marriage is a partnership, but it's also amusing to occasionally engage in a mock competition to keep things interesting, as long as you let the other party in on it at some point. Going on 30 years of marriage and looking forward to the next 30.
She knows. She is just protecting your fragile ego. :D
getthatmarshmallow
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Re: Equalizing retirement accounts with spouse

Post by getthatmarshmallow »

Do whatever makes the most sense for your joint financial position - it doesn't have to be an equal split. No need to pay more in taxes just to be "fair."
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Watty
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Re: Equalizing retirement accounts with spouse

Post by Watty »

SilverGuitar wrote: Fri May 21, 2021 2:16 pm First of all, is this a silly goal to try and achieve approximately even balances between retirement balances? As in, we're married and our finances are totally combined, so even if one person's retirement check is bigger than another's, it will all be going into the same pot. Or is it a worthwhile endeavor, just to ensure that we're both on even footing in case something bad happens? For reference, we're both in our mid-30s.
As others have said in the event of a death or divorce things will get worked out so that is not a big concern.

There are some situations where it does make sense to consider which spouses account it makes sense to keep money in, but in some situations you might choose to keep them unequal instead of equal if there is an advantage if you do that;

1) If your ages are significantly different. This will impact when you can start easily accessing the retirement accounts when you are 55 or 59.5. In addition you also need to consider when RMDs start at 72. My wife is five years older than I am so this makes a significant difference for us.

2) You are likely to retire at different times. The person still working may not be able to withdraw money from a 401k until they retire.

3) My state, Georgia, has a retirement income exclusion of $65K, so it is $130 total for a couple once they are 65. Below that amount you do not pay state income tax. The catch is that this is per person so it matters who owns the different retirement accounts. For example if I withdraw $75K from my IRA but my wife withdraws $0 from her account then I could only exclude $65K and we would pay state taxes on the other $10K since we cannot combine the exclusion amount.

4) Backdoor Roths may be limited if you have other IRA accounts in your name. If you expect to do backdoor Roths then it might make sense to not put money into an IRA and put it into a spouse's retirement account instead.
$=WxTxI
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Re: Equalizing retirement accounts with spouse

Post by $=WxTxI »

SilverGuitar wrote: Fri May 21, 2021 2:16 pm Hi all, I've been pondering this idea for some time and am seeking input on how best to go about it.

I'd like to figure it out so my wife and I have roughly equal retirement accounts. It's complicated because she's a teacher who participates in the state teacher pension system (roughly 10% of each of her paychecks goes into this), so she won't need as much in her Roth and rollover IRA (from a previous job) as I would in mine, if we're trying to keep things equal. Because I won't have a pension. So in theory, we should be putting more money into my retirement accounts (401k + Roth) than into her retirement accounts (Roth), because she's already got about 10% of her paycheck going into her pension.

First of all, is this a silly goal to try and achieve approximately even balances between retirement balances? As in, we're married and our finances are totally combined, so even if one person's retirement check is bigger than another's, it will all be going into the same pot. Or is it a worthwhile endeavor, just to ensure that we're both on even footing in case something bad happens? For reference, we're both in our mid-30s.

Second, are there any calculators out there to help with this, i.e. to find out the equivalent dollar amount of a 401k/Roth IRA account when compared to a pension fund? Like if a pension fund might be paying $50k a year in perpetuity, what would that equate to in a 401k or Roth IRA balance? And how does that relate to how much we're contributing currently?

At first glance, I might have said "We want to contribute 15% of our incomes into retirement. In my case, I'm simply putting 15% of my income into 401k & Roths. She's putting 10% of her paycheck into her pension automatically, therefore if she just puts 5% more into her account, that will be equal to mine." But I'm sure it's not as simple as this. Because our "balances" at retirement will probably be way different, even if we're each contributing 15% of our similar salaries toward pension/retirement, because the pension system is way different from how a 401k/Roth might grow and be calculated.

Hope this makes sense. Would love to hear what others think. Thanks in advance!
You need to have 1.25 million more than her at retirement age to account for her pension.

Use online calculators to figure out your contribution rate required to hit this target by your retirement age.
basspond
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Re: Equalizing retirement accounts with spouse

Post by basspond »

My DW retired a few years after I did. When I retired, my balance was 30% more then hers but since I “balanced” my holdings and she didn’t it is about even now.

I would at least have her save 10% into her retirement. Remember you are putting in over 12% into social security. Your best combined financial strategy though is to have a strong marriage. Many studies have concluded the most common thread in wealth building is marrying and staying married.
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RickBoglehead
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Re: Equalizing retirement accounts with spouse

Post by RickBoglehead »

Yes, this is a silly goal, to answer your question.

Been married over 40 years. Immediately combined assets. Wife worked, then was stay at home Mom for many years, then a school volunteer, then a part-time classroom aide, now finishing 10 years as a paraprofessional. Her income has never approached a fraction of mine. She has maximized retirement savings, including for the last 10 years banking nearly every penny of her pay into retirement accounts. Her paycheck each pay period varies between $0.00 and $0.01 depending on rounding. The only take-home pay that she's received in 10 years has been as a result of a mistake by the payroll office, or a one-time payment that they didn't put in her retirement account. I've also funded her Roth IRA each year.

Despite all this, as we approach retirement next month, her total retirement accounts are just under 1/2 of mine. That's just the way it goes. Doesn't matter, because what's mine is ours and what's hers is ours. :wink:

Her Social Security payment will be about 30% of mine.

Note - of course during the Dot Com fiasco, only my retirement accounts played in stocks then went under...
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Beehave
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Re: Equalizing retirement accounts with spouse

Post by Beehave »

For us, whatever can be jointly held is jointly held. Both are now retired, except I work part time. I make equal annual Roth IRA contributions to a Roth set up in my spouse's name and a Roth set up in mine each year. We take RMDs as required, and any excess funds go into joint brokerage or savings accounts. We've done everything possible joint from the start and almost never fought about money issues, even when things were very, very tight.

Who was it that said, "From each according to his means, to each according to his needs...?" Oh yeah - - it was Karl something or other and I'm guessing this may be the 1st time he's been quoted in a Bogleheads forum! Anyway - we have treated the finances of marriage as a cooperative effort with each doing our best to contribute and being generally prudent about taking out. And to be clear about it, I know couples who do keep separate accounts with each having responsibility for specific bill payments and they appear to be very happy with their way of doing things.
delamer
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Re: Equalizing retirement accounts with spouse

Post by delamer »

Watty wrote: Sun May 23, 2021 9:51 am
SilverGuitar wrote: Fri May 21, 2021 2:16 pm First of all, is this a silly goal to try and achieve approximately even balances between retirement balances? As in, we're married and our finances are totally combined, so even if one person's retirement check is bigger than another's, it will all be going into the same pot. Or is it a worthwhile endeavor, just to ensure that we're both on even footing in case something bad happens? For reference, we're both in our mid-30s.
As others have said in the event of a death or divorce things will get worked out so that is not a big concern.

There are some situations where it does make sense to consider which spouses account it makes sense to keep money in, but in some situations you might choose to keep them unequal instead of equal if there is an advantage if you do that;

1) If your ages are significantly different. This will impact when you can start easily accessing the retirement accounts when you are 55 or 59.5. In addition you also need to consider when RMDs start at 72. My wife is five years older than I am so this makes a significant difference for us.

2) You are likely to retire at different times. The person still working may not be able to withdraw money from a 401k until they retire.

3) My state, Georgia, has a retirement income exclusion of $65K, so it is $130 total for a couple once they are 65. Below that amount you do not pay state income tax. The catch is that this is per person so it matters who owns the different retirement accounts. For example if I withdraw $75K from my IRA but my wife withdraws $0 from her account then I could only exclude $65K and we would pay state taxes on the other $10K since we cannot combine the exclusion amount.

4) Backdoor Roths may be limited if you have other IRA accounts in your name. If you expect to do backdoor Roths then it might make sense to not put money into an IRA and put it into a spouse's retirement account instead.
I’m glad Watty pointed out the above issues.

The age difference and retirement income exclusion for state taxes also applies to me and my husband. While we didn’t create any major tax problems by not paying more attention to them, we probably could have done a better job with our 401(k) contributions in terms of whose accounts we prioritized and the timing of future RMDs.

On the other hand, at one point we didn’t know what state we would retire in so we couldn’t do planning to optimize the exclusion.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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celia
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Re: Equalizing retirement accounts with spouse

Post by celia »

SilverGuitar wrote: Sat May 22, 2021 1:43 pm In our case, this would probably be the ordering of priorities:

1. Max my 401k with match (doing).
2. Max her HSA (doing).
3. Max our Roth IRAs (don't have enough yet, though there is an inheritance coming that could fund these for a few years).
4. Max my wife's optional retirement plan (outside of her pension), which has better investment options than my 401k.
5. Max my own 401k. Options not as good as hers, but it's still obviously tax-advantaged.
6. THEN - consider taxable investments.
You don’t want to save primarily in tax-deferred as too much will surprise you with a “tax torpedo” when RMDs start at age 72. Even trying to do Roth conversions in early retirement can be a challenge. And if you don’t have savings in taxable accounts, how will you pay the taxes when you want to convert?

Moderation/ diversification among Taxable, tax-deferred, and Roth is better. They don’t need to be equal but you should think long-term. When you both retire some day, what do both of you wish your portfolio looked like? Here is some valuable reading for you by early and not-so-early retirees:

viewtopic.php?f=1&t=337660&p=5763312

Also see my signature line at the end of this post.

I'm intrigued to learn more about the implications of disparities in retirement with regards to Medicaid coverage for long-term care...
You don’t want to plan for Medicaid coverage. This is state specific but generally means your assets are only $2,000 or less, not counting a house owned jointly. It is for the indigent and you probably won’t like the level of care.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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