MONEY 401(k)s

The Big Mistake That Most 401(k) Savers Are Making

uneven balance with money on each side
iStock

The average 401(k) plan balance has risen to $100,000. But most workers fail to rebalance, so risks are rising too.

When it comes to saving in your 401(k), doing nothing can often work wonders.

As a recent survey by Aon Hewitt found, some 79% of workers who are eligible for a 401(k) or similar plan are participating, thanks in large part to the do-nothing magic of automatic enrollment. It’s the highest level since at least 2002, when the firm started tracking participation rates. This steady saving helped push account balances to a record high of $100,320 last year, up 10% from 2013.

Still, 401(k) inertia has a downside too. As the survey shows, most workers aren’t paying attention to the investments they hold, which increases the odds they will fall short of their retirement goals.

Take those record balances. Truth is, that 10% growth rate is relatively sluggish, which suggests many participants are invested in an ultra-conservative manner. The S&P 500 stock index jumped 13.5% in 2014, while Treasury bonds produced a 10.75% return. Moreover, only 24% of participants increased the amount they save each pay period, Aon Hewitt found. So even with additional cash going in, the average balance did not keep pace with either the stock market or the bond market.

Granted, a portion of that slow growth can be explained by regular distributions and early withdrawals. Last year, 3.6% of participants took regular withdrawals, up slightly from 3.5% the previous year, the Investment Company Institute reports. Meanwhile, 1.7% took a hardship withdrawal and at year-end 17.9% had a plan loan outstanding, ICI says. But a bigger issue probably has to do with participants leaving too much money in short-term money market accounts. In a lot of plans with automatic enrollment, the money goes into cash accounts that yield well under 1%.

Looking beyond account balances, Aon Hewitt’s data highlights another worrisome trend—only 15% of 401(k) savers did any sort of rebalancing last year, one of the lowest trading rates on record. Rebalancing is a fundamental aspect of long-term investing. Say your target asset mix is 60% stocks, 30% bonds and 10% cash. Once a year you should sell just enough of the funds that grow fastest (lately, stocks)— and add enough to the laggards (cash and bonds)—to restore your target mix. This time-tested strategy ensures you will buy low and sell high over the long haul and maintain the right level of risk in your portfolio.

Two years ago, stocks rose 32% and bonds fell 9%. The prudent move would have been to sell some stocks and buy some bonds, which would have let you benefit from the bond market’s rally last year. Stocks also rose last year by 13.7%. So if you haven’t rebalanced in the past two years, you probably hold a lot more in stocks than you originally intended, which means you may suffer worse-than-expected losses when the next bear market arrives.

The low level of rebalancing activity is only partly explained by the stunning rise of target-date funds, which automatically adjust holdings as you age. About 70% of 401(k) plans offer target-date funds and 75% of plan participants invest in them, according to T. Rowe Price. Stripping those and similar funds out, Aon still found that only 19% of participants rebalanced.

Add it all up, and it’s clear that workers now realize that they must save, and they want to know more about managing their money. But many are held back by inertia and concerns that they don’t know what they are doing. That’s why most heartily embrace plan features like automatic enrollment and automatic escalation of contributions. Aon Hewitt says workers would also benefit from better access to online tools and advice, and a simplified lineup of investment options.

The Holy Grail, though, may be a guaranteed lifetime income product, such as a deferred fixed annuity (for a portion of your portfolio), inside all defined contribution plans. These reduce the risk of failing to rebalance while giving workers something most sorely lack—an income stream other than Social Security that will never run out. Slowly, these income products are coming, Aon Hewitt says, as leading-edge companies better understand the laws and their responsibilities for what is a fairly new investment option.

Read next: How the New-Model 401(k) Can Boost Your Retirement Savings

MONEY Love + Money

The Money Problem Most Likely to Kill a Relationship

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Roy Hsu—Getty Images

Debt will chip away at your relationship. Here's how to conquer it together.

MONEY’s new poll of the behaviors of some 1,000 millennials and boomers when it comes to relationships and money found that couples who are in sync on financial issues feel more secure, argue less about money—and have hotter sex lives. But there’s one issue that consistently gets in the way of marital harmony: debt.

Two in 10 boomers and millennials say they fight about credit card debt, making this one of the five most common conflicts for both groups. Among the older generation, 61% find excessive debt unattractive. On the surface, Gen Y seems less concerned about debt, with just 41% saying it’s a turnoff. But that’s deceiving. Millennials, sometimes called “generation debt,” are so weighed down by student loans that many just accept debt as a condition of being young.

In any case, the impact of debt on relationships is undeniable: “It is a silent killer, chipping away at your self-confidence,” says psychologist Kathleen Gurney, author of Your Money Personality. In fact, Jeffrey Dew, associate professor at Utah State University, found that marital satisfaction is correlated with assets, so that as debt increases, happiness wanes. A big IOU, of course, also stands in the way of your goals. Case in point: More than 70% of young adults say student loans keep them from saving, a National Foundation for Credit Counseling poll found.

The good news is that “as couples experience success paying down debt,” says Gurney, “they start to see themselves and their partners differently, and the arguing ends.”

Here’s how you can beat your debt together.

Open with someone’s misfortune. Got debt that’s burning a hole in your goals? Again, it helps to use a life event to spur the conversation, but in this case a negative one can have more impact. Particularly if one or both of you have been avoiding facing facts, “a soft-and-fuzzy approach won’t get results,” says Bruce McClary of the National Foundation for Credit Counseling. You might mention how a friend’s aging parent needs help or bring up the challenges your brother has faced since being downsized, noting how if it had happened to you, your debt might make it tough to respond.

Create a pay-down plan jointly. In MONEY’s survey, 70% of millennials and 77% of boomers say properly managing debt repayment makes for a healthy relationship. Indeed, a systematic approach is the best way to erase balances, says McClary. Some people start with the highest-rate credit cards, to reduce the total interest paid, then move on to other debt. An alternative tack is to start with the smallest balances to enjoy early success. Or follow the lead of Lisa Dell and Cory Tiffin, who began attacking their combined $10,000 on four credit cards after marrying three years ago. Initially the Chicago couple, now 31 and 29, started paying the minimum on their lowest-rate cards and double the minimum on their highest-APR cards. “But we kept feeling we weren’t making progress,” she says. So they transferred the balances to one card and, by paying $900 a month, vanquished the debt in 20 months.

There’s no right answer. What’s important is that you make the decision together. Same for choosing what sacrifices you’ll make. Also be sure to review your progress regularly. As you whittle down the debts, says financial planner Wallace, “you’ll be more motivated to stick to the plan.”

More from the Love & Money survey:
Poll: How Boomer and Millennial Couples Feel About Love and Money
Why Couples Need to Get Financially Naked
The Single Most Important Money Talk for Couples
How Money Can Improve Your Sex Life (It’s Not What You Think)

MONEY Savings

Why Regular Retirement Saving Can Improve Your Health

stacked piggy banks
iStock

More workers who make saving a habit report better health than those who do not. And it's not just about having a high income.

People who save money out of habit are more confident about retirement and better prepared financially, as you might expect. But there’s a sleeper benefit, new research shows. Consistent savers also are in better health—no small matter as longevity stretches out life spans and means you likely will live in retirement more years than you did in childhood.

Three in four regular savers rate their health as excellent or good, compared to 62% of those who do not save regularly, according to the Aegon Retirement Readiness Survey 2015. This might have to do with the lower stress that comes from being financially secure. Meanwhile, 77% of those in excellent health expect to live comfortably in retirement, vs. just 49% of those in poor health, Aegon found.

Given the active aspirations of today’s retirees, the longevity revolution has elevated the role that health plays in later life. Half of those in the Aegon survey would like to pursue new hobbies; two-thirds would like to travel more, and 1-in-6 would like stay at work in their retirement years.

Saving regularly, then, not only helps provide financial wherewithal but also seems to contribute to remaining healthy enough to pursue such activities. Yet just 39% of workers are “habitual savers,” Aegon found in a survey spanning 15 nations. Habitual savers are those who are always putting away money for retirement, including regular payroll deductions for a 401(k) or other automatic savings plan.

In the U.S., 52% of workers are habitual savers while 20% save some of the time; 11% are aspiring savers, who expect to begin saving soon. It’s easy to see why those who save out of habit are more confident. Globally, 79% of habitual savers have a retirement plan, vs. just 14% of aspiring savers. Nearly half of habitual savers also have a backup plan, should they be hit with job loss or poor health, vs. just 13% of aspiring savers.

Saving money regularly is not about high incomes. The average habitual saver earns $41,000 a year, Aegon found. Among habitual savers in the U.S., the average income is $73,000. How can we get people to save regularly? About half of workers said it would help if they got a pay raise and 33% said it would help if they got more of tax break; 20% said it would help if they had simpler investment options.

The real answer, though, is probably broader access to employer-sponsored savings programs. Today’s no-decision 401(k) plans increasingly incorporate features like auto enrollment, auto escalation of contributions and simple asset allocation and diversification through target-date mutual funds. Some 60% of aspiring savers like these features and would not opt out of plans that automatically contributed 6% of their pay, Aegon found.

That’s important because the hardest part of saving regularly is getting started, and the earlier you get started the less you have to save. Consider a worker making $41,000 a year, saving 8% of pay, and earning a return 4 percentage points above the inflation rate. If this worker begins saving at age 20, at age 65 she will have retirement income of $29,000 a year—equal to 71% of pre-retirement income and in a range most advisers find acceptable, Aegon found. If the same saver begins at age 30, she will have retirement income of $18,000-equal to just 43% of pre-retirement income.

Read next: How the New-Model 401(k) Can Boost Your Retirement Savings

MONEY Kids and Money

Shark Tank for Kids: This Game Delivers the American Dream

A cattleman from Peoria, IL gets a second chance to show the Sharks what he's learned about his gourmet meat business since his Season 4 visit to the Tank.
Kelsey McNeal—ABC

Educators are using reality TV as a model for teaching kids about money. Here's why it works.

As part of his middle school history and civics classes, James Kindle incorporates a segment on money. He calls it Shark Tank after the popular TV show, and while the idea is to introduce personal financial concepts and entrepreneurship what Kindle believes he really teaches is how to achieve the American dream.

Just like the competitors in the TV show, Kindle’s students must come up with a business idea, write a proposal, and pitch the concept to teacher “investors.” He’s a pretty good pitchman himself. Bringing financial education alive through his Shark Tank program at Sullivan Community School in Minneapolis, Minn., earned Kindle first place in the PwC Financial Literacy Innovation Challenge and a $50,000 prize for his school.

“I want to give my students a taste of this dream, while teaching persuasive language, entrepreneurship, and financial literacy skills,” Kindle wrote in a request for funding. In an email, he added “while it might be awhile before my students are meeting with investors and venture capitalists to fund their business ideas, it won’t be long until they are presenting at science and history fairs, competing in speech and debate, or meeting with college admissions officers.” So his program teaches presentation skills, too.

As one of the judges in the PwC Charitable Foundation contest, I can say that what resonates in Kindle’s program is the game-based approach to a difficult subject, along with the infusion of popular culture to make the experience relevant. These were common traits of all top finishers. The results suggest to both parents and educators that they would do well to keep the principles of fun, hands-on, and timely instruction in mind when trying to teach young people about money.

Second place went to a history and civics class at Lawrence County High School in Moulton, Ala., where they play Biggest Loser, also modeled after a popular TV show. Students visit “exercise stations” where they choose a loan or credit card or make some other decision to help them lose “weight” (debt). Who knew reality TV could serve a purpose? Other finalist programs were organized around things like how much various careers pay, and everyday saving and spending decisions.

“Mr. Kindle’s Shark Tank lesson bases financial literacy around core values and behaviors versus facts and figures in order to teach skills like persuasion, negotiation and ownership,” says Shannon Schuyler, PwC corporate responsibility leader. “The idea was contagious, authentic and, most importantly, fun.”

Interestingly, this contest’s winners are taking bows even as educators around the country wrestle with the role of play in learning. With today’s focus on formal education, kids are being asked at earlier and earlier ages to put away the blocks and listen to their teachers lecture. Yet some researchers say this “head start” may backfire. Rebecca Marcon, a psychology professor at the University of North Florida, found that pre-school students allowed to learn through play earned significantly higher grades in the third and fourth grade. With financial education, especially, most experts agree that a game-based approach works best.

One study found that when good instruction is paired with high-quality digital games there is a 12% jump in cognitive learning outcomes. The game-oriented H&R Block Budget Challenge has produced evidence that this type of learning significantly improves financial know-how. Says Kindle: “Using games always increases student engagement. An activity that seems mind-numbingly boring, when slightly twisted into a game, suddenly becomes thrilling.”

Relevance and timeliness are also important. Modeling programs after Shark Tank and Biggest Loser gave students an instant touchstone. At home, parents trying to make a financial point might choose an opportune moment—perhaps when their teen is getting an iPhone upgrade, which means more to them than the incremental cost of your adjustable-rate mortgage as bond yields tick higher.

Understanding personal finance isn’t just a way to make ends meet. As the enterprising middle school teacher from Minneapolis might say, it’s how you achieve the American dream.

Read next: Kids and Money: The Search for What Really Works

MONEY Love and Money

What to Do When Financial Opposites Attract

magnet pulling money
Yamada Taro—Getty Images

Here's how to keep the attraction going strong when money starts to pull you apart.

Ira Cohen and his wife, Lisa, have been married for 34 years, and they are the first to admit that they are financial opposites: “She’s a “let’s live for the moment” person, and I err on the side of caution,” says Ira, a mutual fund executive. That created a conflict when the Sugar Land, Texas, couple remodeled their kitchen several years ago. Lisa was insistent on a $1,500 warming drawer that Ira didn’t think was necessary. The couple bickered over it, then “I overrode him and bought it anyway,” says Lisa, a high school administrator. He wasn’t happy but finally succumbed. “If she is that passionate about this, am I really going to fight and scream over it?” he says.

In a poll last year, MONEY found that 70% of couples argue about money, putting it ahead of conflicts over chores, sex, or snoring. What’s more, money fights are the only common spats correlated to divorce: Couples who fight about money weekly are 52% more likely to divorce than those who argue about money monthly, according to a study by Jeffrey Dew, associate professor at Utah State University.

In this year’s Love & Money survey, MONEY identified the No. 1 source of conflict: “spending too much on frivolous purchases.” A partner’s frugality is another major trigger, in the top five for both generations. This classic spender-saver tension can be bad for your marriage, but can also be deleterious for your finances, particularly if the spender gets out of control.

Here’s how to keep each of your opposite tendencies in check to strengthen your union.

Allow bandwidth on smaller stuff. Spenders feel oppressed by savers watching them like hawks (which may explain why American Express found that 33% of men and 40% of women have hidden purchases from their partners). Savers get anxious every time they see their spouses swipe a card. To overcome this tension, automate savings so that those funds are never in question. Also take a cue from the 54% of millennials and 51% of boomers who think spouses should keep some money separate. You’ll both feel freer if you set up his-and-her discretionary spending accounts in which you ask no questions about where the money goes, says Brad Klontz, a financial psychologist and the author of Mind Over Money.

To prevent conflicts on joint accounts, set a spending cap, above which each of you has to clear purchases with the other. Around $150 seems to be a magic number for both boomers and millennials in MONEY’s survey. Or set alerts on your accounts to let you know when you exceed a withdrawal amount or your balance falls below a certain level.

Let numbers drive bigger decisions. Larger purchases will naturally require more back and forth. Ira Cohen offers this advice: To avoid inciting anger, don’t just say no to a spouse who wants something you don’t want. “I tend not to debate the value of the item with Lisa, but be the voice of reason on timing and assessment of need, saying, ‘Can we wait on this?’ ” says Ira. And if she keeps asking, he eventually cedes, recognizing it’s something she cares a lot about.

Asking a spender to prioritize wants within a budget can also help you compromise without breaking the bank. Moving from Florida to Chicago this winter, Patricio Virgili, 29, an airport inspector, and his partner, Edmund Balzer, 23, a library specialist, went from one bedroom to two. “We had a lot of empty space, and I wanted to get furniture to fill it out,” says Balzer. “But Patricio is conservative with money and happy with a spartan lifestyle.” So he made a list of what he wanted, and they ranked items by importance. “Then we negotiated and renegotiated till we were both happy,” he says.

Audit yourselves periodically. Whenever Avik and Shailja Chopra feel as if their budget is getting off track, the Millburn, N.J., couple pick a month to record every expense and then talk about what they found. “You don’t realize how much you spend until you put it all down on paper,” says Shailja, 48, a lawyer. “It always changes the way we handle our finances,” adds Avik, 54, a technology consultant.

Flash-point budgeting like this—whether manual or automatic through Mint or Quicken—can help you uncover spending leaks. One time the Chopras discovered Avik was spending $100 a week on lunch. “When my wife saw that, she thought I should bring food from home,” Avik says. But he wanted time to connect with his colleagues. So they compromised: He now brown bags lunch three days a week.

More from the Love & Money survey:
Poll: How Boomer and Millennial Couples Feel About Love and Money
Why Couples Need to Get Financially Naked
The Single Most Important Money Talk for Couples

MONEY 401(k)s

How the New-Model 401(k) Can Help Boost Your Retirement Savings

150521_RET_NewModel401k
Betsie Van Der Meer—Getty Images

As old-style pensions disappear, today's hands-off 401(k)s are starting to look more like them. And that's working for millennials.

If you want evidence that the 401(k) plan has been a failed experiment, consider how they’re starting to resemble the traditional pensions they’ve largely replaced. Plan by plan, employers are moving away from the do-it-yourself free-for-all of the early 401(k)s toward a focus on secure retirement income, with investment pros back in charge of making that happen.

We haven’t come full circle—and likely never will. The days of employer-funded, defined-benefit plans with guaranteed lifetime income will continue their three-decade fade to black. But the latest 401(k) plan innovations have all been geared at restoring the best of what traditional pensions offered.

Wall Street wizards are hard at work on the lifetime income question. Nearly all workers believe their 401(k) plan should have a guaranteed income option and three-in-four employers believe it is their responsibility to provide one, according to a BlackRock survey. So annuities are creeping into the investment mix, and plan sponsors are exploring ways to help workers seamlessly convert some 401(k) assets to an income stream upon retiring.

Meanwhile, like old-style pensions, today’s 401(k) plans are often a no-decision benefit with age-appropriate asset allocation and professionally managed investment diversification to get you to the promised land of retirement. Gone are confusing sign-up forms and weighty decisions about where to invest and how much to defer. Enrollment is automatic at a new job, where you may also automatically escalate contributions (unless you prefer to handle things yourself and opt out).

More than anything, the break-neck growth of target-date funds has brought about the change. Some $500 billion is invested in these funds, up from $71 billion a decade ago. Much of that money has poured in through 401(k) accounts, especially among our newest workers—millennials. They want to invest and generally know they don’t know how to go about it. Simplicity on this front appeals to them. Partly because of this appeal, 40% of millennials are saving a higher percentage of their income this year than they did last year—the highest rate of improvement of any generation, according to a T. Rowe Price study.

With a single target-date fund a saver can get an appropriate portfolio for their age, and it will adjust as they near retirement and may keep adjusting through retirement. About 70% of 401(k) plans offer target-date funds and 75% of plan participants invest in them, according to T. Rowe Price. The vast majority of investors in target-date funds have all their retirement assets in just one fund.

“This is a good thing,” says Jerome Clark, who oversees target funds for T. Rowe Price. Keeping it simple is what attracts workers and leads them to defer more pay. “Don’t worry about the other stuff,” Clark says. “We’ve got that. All you need do is focus on your savings rate.”

Even as 401(k) plans add features like auto enrollment and annuities to better replace traditional pensions, target-date funds are morphing too and speeding the makeover of the 401(k). These funds began life as simple balanced funds with a basic mix of stocks, bonds and cash. Since then, they have widened their mix to include alternative assets like gold and commodities.

The next wave of target-date funds will incorporate a small dose of illiquid assets like private equity, hedge funds, and currencies, Clark says. They will further diversify with complicated long-short strategies and merger arbitrage—thus looking even more like the portfolios that stand behind traditional pensions.

This is not to say that target-date funds are perfect. These funds invest robotically, based on your age not market conditions, so your fund might move money at an inopportune moment. Target-date funds may backfire on millennials, who have taken to them in the highest numbers. Because of their age, millennials have the greatest exposure to stocks in their target-date funds and yet this generation is most likely to tap their retirement savings in an emergency. What if that happens when stock prices are down? Among still more concerns, one size does not fit all when it comes to investing. You may still be working at age 65 while others are not. That calls for two different portfolios.

But the overriding issue is that Americans just don’t save enough and a reasonably inexpensive and relatively safe investment product that boosts savings must be seen as a positive. With far less income, millennials are stashing away about the same percentage of their earnings as Gen X and boomers, according to T. Rowe Price. That’s at least partly thanks to new-look 401(k)s and the target-date funds they offer.

Read next: 3 Ways to Build a $1 Million Nest Egg Despite Lower Investment Returns

MONEY Love + Money

The Single Most Important Money Talk for Couples

The Voorhes

A new MONEY poll of millennial and boomer couples suggests that getting on the same page about your biggest money goal —retirement— leads to a happier and stronger union.

Married for 38 years, San Jose couple Carol and Ron Beck started getting serious about retirement in their mid-thirties. By that time, they had two kids and realized they needed to be thinking about their family’s future. So they set some savings goals, and continued talking about their plans in the years and decades that followed. Ron planned to retire around 65, and did. Carol is expecting to quit in the next two years. “We’re still deciding where we’d like to retire to,” Ron says. But even on that they have a good idea: a home near their daughter in Monterey, Calif.

There’s no question that couples need to plan together for retirement. In fact, since amassing the requisite amount of money will take time, retirement should typically be first on the list of priorities. “When it comes to goals, everything else comes next,” says Elizabeth Grahsl, a financial planner in Dallas.

A new MONEY poll of boomer and millennial couples suggests that we may need a little more help with this goal then we think. Some 79% of millennials and 91% of boomers surveyed say they are in agreement with their partners on saving for retirement. But MONEY also found that, among people who are married or living with a significant other, one in 10 boomers and four in 10 millennials don’t know their partner’s retirement account balance, while 14% of boomers and 40% of millennials don’t know when their partner plans to retire. That backs up a 2013 Fidelity poll that found that 38% of couples disagree on the lifestyle they expect, 36% on where they will live, and 32% on whether they will work. The costs of not being aligned are substantial: You could end up with less than you need at the finish line.

Here’s how you can avoid such a fate while strengthening your union and your finances.

Know your retirement wish lists. Since the amount of savings you need depends on your wants, create a “vision plan” together, says Brad Klontz, a financial psychologist and the author of Mind Over Money. Both of you should write down at what age you want to retire, where you want to live, and what you expect your life to look like. Do you want to stay put, downsize … sail around the world? “Come to the table with your dreams,” Klontz says. “Where you agree, it will be easy to adjust your finances because you are excited.”

Do a reality check. First, are you saving enough for the life you want? Check what your nest egg is on track to produce in annual income with T. Rowe Price’s Retirement Income Calculator, and see if that squares with your vision.

Second, keep in mind that retiring at the same time as your spouse typically isn’t the best move. Wives are often younger than their husbands, and women have longer life spans, so if a wife retires with her hubby, she’ll probably need to draw from their retirement savings for longer.

Also figuring into the equation are Social Security benefits, which make up 38% of income for the average retiree and which you’ll also want to coordinate with your spouse. One way to maximize benefits is to “file and suspend.” The higher earner files, then immediately defers benefits to let them grow (they rise 8% for every year you delay between full retirement age and 70). Assuming the lower earner is at full retirement age, he or she can then claim a spousal benefit, deferring his or her own benefit, which will also rise in the meantime. As you near retirement, run this and other basic scenarios using the benefits planner at ssa.gov or more detailed ones at maximizemysocialsecurity.com ($40).

Create a holistic plan. Make sure you’re acting as a team when it comes to saving and investing. If you’re a two-income household, you probably have access to two 401(k)s, for total annual tax-deferred savings of $36,000, or $48,000 if you’re both 50-plus. Stash at least enough in each to get the full company matches. If you can’t max out, sign up for automatic increases as your pay rises. “This is so basic it’s like breathing,” says O’Kurley, “yet a lot of couples don’t talk about it.”

You also want to think of your portfolio as one, and make sure you don’t have overlap or overexposure in your overall mix. The Instant X-Ray tool at Morningstar.com can help you figure this out. As a general rule, the percentage of your portfolio in stocks should be equal to 110 minus your age; the rest should be primarily in bonds. But if one or both of you have a traditional pension, you could adjust the bond allocation lower, since the guaranteed income allows you to take more risk.

Got several years between you or different tastes for risk? A UBS survey found that half of couples have divergent risk tolerances, but among them, those who choose an allocation between their preferences tended to be most satisfied. It’s also okay for the more risk-averse partner’s plan to be tilted toward bonds and the other’s to serve as a counterbalance in stocks, if that keeps the nervous one from overreacting to volatility. Another reason to split the baby: If your plan has lousy bond fund options, say, you could use your spouse’s plan to fulfill that allocation while using your 401(k) for stocks.

More from Love & Money:
Poll: How Boomer and Millennial Couples Feel About Love and Money
Why Couples Need to Get Financially Naked
This Is the Magic Number That Can Help Couples Avoid Money Fights

 

MONEY Love + Money

Why Couples Need to Get Financially Naked

The Voorhes

A new MONEY poll of millennial and boomer couples suggests that baring it all when it comes to money leads to a happier—and richer—relationship.

Katy Klein and her fiancé, Charles Hagman, both 30, began opening up about salaries, savings, and student loans just nine months into dating. The topics came up naturally as the Seattle couple figured out their plans for attending a pal’s wedding.

“Some of our friends were going early and renting a home by the beach,” says Klein, who works in PR. “So we had a conversation about whether that was in our budget … which spurred other conversations.”

Hagman, a software engineer, had intended to dig into those issues anyway. “I wanted someone who had similar savings goals,” he says. But for Klein, it was new terrain: “I’d never laid it all out.” Now that she’s done so, however, she says that financial transparency has set a solid foundation for their marriage.

Experts would agree. “Couples have less conflict about money when they share information,” says Terri Orbuch, a Detroit family therapist and the author of 5 Simple Steps to Take Your Marriage From Good to Great. Knowing where you stand and what you want to accomplish builds trust and a sense of teamwork. Plus, getting on the same page gives you a better shot at hitting your goals and less risk you’ll unwittingly work against each other, she says. Thus, it’s crucial for married couples—and those headed to the altar—to open their books.

A new MONEY poll of boomer and millennial couples suggests that both generations are on board with baring all. When it comes to what partners should discuss before marriage, boomers and millennials both say the docket should include debt (78% of both groups), savings goals (69% and 74%, respectively), and amount saved (63% and 56%).

And yet other research suggests that few married couples truly practice transparency in their daily lives. A few years back, an American Express poll found that 91% of people avoid money talks with their partners; another from last year revealed that only 52% have financial conversations at least weekly. Worse, one in three adults in relationships say they lie to their partner about money, the National Endowment for Financial Education found.

As part of a monthlong series on Love and Money, we’ll be digging into our survey data and suggesting ways that couples can strengthen their unions and their finances. First step: Get financially naked. Here’s how to do it.

Choose a happy moment. Start the transparency conversation around the time of a positive event, like a promotion or a wedding, or at least when there’s an absence of major problems. “Finances are much easier to talk about when you are flush and happy,” says Mary Claire Allvine, a financial planner in Atlanta and the author of The Family CFO. “And opening up in good times makes it easier to talk about money when life changes for the worse.”

If you’re starting in a void, point to an article you’ve read, like this one. Say something like, “It made me realize I don’t know where we stand. Maybe we could take a look some night this week?”

Go full frontal. Crack open a bottle of wine and start opening your books. Begin by making a net-worth statement. This summary of assets and liabilities gives you a framework toward your common goals. It can also help you uncover flaws in your strategy, like debt growing as fast as savings. Use an online net-worth calculator like the one at Bankrate.com or an Excel spreadsheet. Plan to update your numbers quarterly.

If you have the energy, make a list of monthly expenses—review the last few months of bank and credit card statements—so you know where money is going. Or upload your accounts to an online money-management tool like Quicken or Mint, says Miami financial planner Ashley O’Kurley.

Find out your mate’s musts. Setting goals together begins with understanding your partner, says Patrick Wallace, a financial planner with Higher Strata Wealth Management in Hurst, Texas. He suggests you both answer these questions: What are the three most important money lessons you learned growing up? What are your three biggest money worries? What are your three biggest goals? What are the three most important ways you want to use money to leave a legacy? The answers will help your spouse understand what is important to you. “Your goals may still be in conflict,” says Wallace, “but it will be easier to compromise.”

 

MONEY Kids and Money

How New College Grads Can Beat the Tough Job Market

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The career expectations of college grads may be overoptimistic. But these strategies can boost their odds of landing a job.

As another crop of college graduates frame their diplomas, another dose of reality is about to set in. The financial crisis may be ancient history for this group, most of whom were still in middle school when the market began to plunge. But the effects linger—and new entrants to the job market may be surprised at how difficult it is, even now, to move ahead in this economy.

Eight in 10 new graduates expect to have a job in their field within a year, with more than half expecting to land one within two months, according to an analysis from Upromise.com, a college savings website. That jibes with research from Accenture, which found that 80% of the Class of 2015 say their education prepared them well for the workforce. Yet here’s the reality: 49% of graduates from 2014 and 41% from 2013 report being underemployed (having no job or one that does not require a college degree), Accenture found.

Meanwhile, just 15% of this year’s graduates expect to earn $25,000 or less in their first job. But almost three times that many from the classes of 2013 and 2014 report that level of income. So for entry-level job seekers, it’s still surprisingly tough out there.

Despite their upbeat expectations, most new grads do have a fallback plan: Mom and Dad. About half expect to be financially dependent on their parents for two years after graduation, and they are prepared to move back home and pay rent, Upromise found. This won’t surprise their parents. Nearly a quarter of 25- to 34-year-olds lives with parents or grandparents, up from 11% in 1980, Pew found. This failure to launch is so widespread psychologists have given it a name: emerging adulthood. The share of parents that expect to support their college graduates for two years or more doubled to 36% this year, according to the Upromise analysis.

Why, then, is this class of graduates so optimistic? First, optimism is rightfully a trait for the young, and Millennials possess it in staggering proportions—probably because they were raised by helicopter parents who constantly extolled their greatness and rewarded them with trophies for showing up. But more is at work here. The economy has been growing since 2009, when this class was taking the SATs. In their college years, this group has known only rising stock prices and an improving jobs and housing market. Consider: through four years of higher education the S&P 500 rose 2%, 16%, 32% and 13%. Even for the uninvested, that’s an encouraging backdrop.

This optimism may also spring from the Class of 2015’s improved career preparation. Accenture found that 82% considered the availability of jobs in their field before choosing a major. That’s up from 75% in the Class of 2014. To minimize student debt, more from this class also started at a community college. And—a crucial step—some 72% of this year’s class had an internship or apprenticeship while in school, up from 65% of graduates the year before.

This is all smart planning. More than half who took part in an internship said it led to a job, Accenture found. At the Intern Group, 88% of those who take part in an internship find work at a graduate level job within three months and 95% say the program was good for their career, says David Lloyd, the firm’s founder. Still, it seems we’ll be talking about the Great Recession a while longer.

Read next: The Costly Career Mistake Millennials Are Making

MONEY Personal Finance

Oh No! Needing a Fridge, Rubio Raids Retirement Account

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Dipping into retirement savings to fund an everyday expense is a common but costly error.

If Florida Sen. Marco Rubio intends to lead by example, he’s off to a rocky start. The Republican presidential hopeful raided his retirement account last September, in part to buy a new refrigerator and air conditioner, according to a recent financial disclosure and comments on Fox News Sunday.

In liquidating his $68,000 American Bar Association retirement account, Rubio showed he’s no Mitt Romney, whose IRA valued at as much a $102 million set tongues wagging coast to coast during the last presidential cycle. Rubio clearly has more modest means, which is why—like most households—if he doesn’t already have an emergency fund equal to six months of fixed living expenses he should set one up right away.

He told Fox host Chris Wallace: “It was just one specific account that we wanted to have access to cash in the coming year, both because I’m running for president, but, also, you know, my refrigerator broke down. That was $3,000. I had to replace the air conditioning unit in our home.”

Millions of Americans treat their retirement savings the same way Rubio did in this instance, raiding a 401(k) or IRA when things get tight. Sometimes you have no other option. But most of the time this is a mistake. Cash-outs, early withdrawals, and plan loans that never get repaid reduce retirement wealth by an average of 25%, reports the Center for Retirement Research at Boston College. Money leaking out of retirement accounts in this manner totals as much as $70 billion a year, equal to nearly a quarter of annual contributions, according to a HelloWallet survey.

Rubio’s brush with financial stress from two failed appliances probably won’t set him too far back. He has federal and state retirement accounts and other savings. And let’s face it: The whole episode has an appealing and potentially vote-getting Everyman quality to it. Still, it is not a personal financial strategy you want to emulate.

 

 

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