Maximize Retirement Contributions in a Dual-Income Household

Saving for retirement is one of the most important financial activities you can do for you and your spouse. This importance may even carry over to your children because you do not want to depend on them late in life. The more you and your partner/spouse can save toward retirement, the better the odds that you can live the independent life you’ve dreamed about as you plan for your retirement years. 

If you and your partner/spouse are both employed, two incomes allow you to double your retirement savings. It also means you need to sync up your spending habits and work towards sharing your financial goals. Our Buffalo Grove retirement planning team at SGL Financial understands this core principle and can provide personalized advice that fits your family’s unique situation and plans for the future.

In today’s blog, we’ll look at ways you can optimize your retirement contributions to take full advantage of your retirement savings opportunities. The team at SGL Financial in Buffalo Grove understands this and can provide personalized advice that best fits your family’s specific situation and plans.

Family Financial Planning: Advice from a Buffalo Grove, IL CFP® Professional

The Importance of Retirement Planning

Retirement planning can be complicated, especially when two incomes and different retirement dates are involved. Managing your finances together means more money coming in each month, which can help improve your savings rates and lifestyle. However, with more money, it’s easy to see an increase in non-essential expenses and debt. It’s also important to consider that decision-making is now shared, which can require detailed conversations around saving and spending.

This is why retirement planning is so important for your long-term financial well-being. 

Financial planning means juggling alternatives, viewpoints, and habits in a dual-income household. If one partner spends more freely while the other is a saver, it can create a dynamic that requires communication and careful balancing of priorities.

The key is to work together through all the stages of your financial journey, from setting goals to making adjustments and updating priorities. Consulting with a CFP® or financial professional in Buffalo Grove can be an important step toward your financial independence for all your retirement years.

Watch our President and Co-founder, Steve Lewit, discuss how to prepare for the unexpected on WG9 TV.

One-Income vs. Two-Income Family Retirement Planning

In one-income families, every dollar counts that much more. You have one source for saving for retirement. These families typically have to budget carefully and may have to live more frugally to pursue their goals. Conversely, dual-income families generally have more money but may also face higher expenses associated with work and non-work-related activities. Regardless of the situation, both families should prioritize saving for retirement. 

Retirement Savings Strategies if You Are a Dual-Income Family

401(k)s:

1. If you are a full-time salaried employee, take full advantage of company-sponsored 401(k) retirement plans. You can contribute up to $23,000 annually (or $30,500 if you’re 50 or older) as of 2024.
2. Be sure to take advantage of any employer match programs. Often, these require employees to contribute a minimum percentage of their salary to capitalize on the matching alternative.
3. If you and/or your partner work in public service or non-profits, you should have access to 403(b) and 457 plans, similar to 401(k)s. These plans have the same annual contribution rates as 401(k) savings plans. 
4. Consider establishing a traditional IRA and/or a Roth IRA in addition to your employer-sponsored retirement plans. In 2024, you can contribute up to $7,000 annually per person or $8,000 if you are 50 or older:
   

• • Each partner can have their own IRA, effectively doubling your savings efforts
  • Decide between Traditional IRAs (tax-free growth and taxable withdrawals)) and Roth IRAs (tax-free growth and tax-free withdrawals) based on your current and expected future tax situations

5. Consider establishing a Health Savings Account (HSA) if you have a high-deductible health plan (HDHP). Your contributions are tax-deductible and grow tax-free, and withdrawals for medical expenses are also tax-free. After age 65, you can withdraw for any reason without penalty (though taxes apply on non-medical withdrawals).
6. Ensure that your investments, in both retirement and non-retirement accounts, are properly balanced to be in sync with your risk tolerance. This is especially important if you own stock from an employer and are at risk of being over-concentrated in one asset. 

This is where the services of a fiduciary financial advisor in Buffalo Grove can prove to be invaluable.

7. Many people think that the best way to optimize Social Security benefits is to delay until 70. However, that is not always the best strategy for everyone. In some cases, taking Social Security early while letting other investments continue to grow at a higher rate could be more beneficial. Timing your benefits can significantly impact the total amount you receive over your lifetime. Remember that you and your spouse could be retired for 30 years or more. 

The best way to understand a Social Security timing strategy that is best for you begins with creating a financial plan. Coordinating your Social Security distributions with your overall retirement plan ensures you maximize your distributions, reducing the risk of outliving your resources, and enhancing your financial security throughout your retirement years.

Are you worried about the impact Required Minimum Distributions (RMDs) may have on your tax situation? Listen to our new podcast on the topic. 

8. If self-employed, explore self-employment retirement plans such as a Solo 401(k) or a SEP IRA. 

Solo 401(k) plans are ideal for self-employed individuals or business owners if you don’t have full-time employees. They allow contributions as both employer and employee, maximizing the contribution limits.

SEP IRAs are appropriate for small business owners and freelancers. Contributions are tax-deductible and can be a significant portion of your income.

9. Build an emergency fund to cover unexpected living expenses if something happens to you or your employment situation. This fund can help reduce the need to dip into retirement savings in case of an unexpected expense or job loss.

10. No one wants to pay more in taxes than necessary. Consider tax-efficient investment options such as municipal bonds or tax-managed funds. You can also use tax-advantaged accounts for income-generating investments and taxable accounts for investments with favorable tax treatments, like qualified dividends and long-term capital gains.

11. When working with your Buffalo Grove financial planner, have regular financial check-ups to review your asset accumulation progress and make adjustments as necessary. Also, periodically assess your retirement goals and savings strategies to ensure they align with any changes in your financial situation or life goals.

If you’re ready to discuss maximizing your retirement contributions, let’s discuss your retirement plan. Contact us to schedule an introductory call.