Retirement & Financial Planning Report

A main reason that two-earner couples get in trouble in preparing for retirement is that the “tend to undersave,” says the Center for Retirement Research, especially when only one of them is covered by an employer-sponsored retirement plan.

“Covered workers in this situation do not increase their contributions to compensate for the fact that their spouse is not saving, so that the contri¬bution rate for couples with a single saver was half of that for two-earner, two-saver couples,” it said.

The report specifically focused on retirement preparedness for women in their 50s and a financial paradox: by standard measures of earnings and wealth, they tend to be better off than single women of that age, but they “are more likely to be at risk for retirement than single women.”

While one reason is that while two-earner couples with just one person saving for retirement tend to undersave because the saver often does not take into account the need to save for the spouse, it said there are several other factors. One is that married couples in their 50s stand to receive smaller Social Security benefits relative to their current earnings than a single person; where a single earner will receive full benefits, a non-earning spouse will receive only half of that benefit. If that spouse goes to work, “the spousal benefit gradually declines and disappears completely when the second spouse’s worker benefit matches or exceeds the level of the spousal benefit.”

Also, one-earner households tend to have lower earnings than two-earner households and thus benefit from the Social Security benefit formula’s weighting toward lower earners. “The net result is that the average two-earner couple has a Social Security replacement rate not only considerably lower than the one-earner couple but also significant¬ly below the rate for single women, who, as noted, also have lower earnings,” it said.

“These findings highlight the need for two-earner couples to save more,” it said.