By Janet Kidd Stewart
Doing the math on becoming a stay-at-home parent often involves tallying up child care, dry cleaning and takeout expenses and weighing how much of that second paycheck is already eaten up by those costs.
Many couples conclude that the profit margin for a second income doesn’t justify the emotional cost. Retirement, often decades away for couples with young kids, isn’t much of a factor in the discussion.
But it came into focus recently for Andrea and Brett Wade, who made the decision about 15 years ago to have Andrea quit a county government job to stay home with their first child. A second son was born about five years later, and Andrea has also been home schooling the boys for the last three years.
Throughout that time she’s worked side jobs from home, from helping Brett with his swimming pool service business to running her own house cleaning company. Today, she works for Envoy, an Uber-style startup online business that offers “family concierge” services like shopping and running errands or light-duty companionship services for seniors.
Even with the extra side jobs, saving for retirement has been a struggle without the workplace savings plans common in more traditional careers, she said.
Five months ago, the couple moved from California to Texas, hoping the lower cost of living will eventually help them buy a home after renting in California. And a recent death in the family prompted the couple to purchase life insurance and start saving for retirement.
They’re aiming to put $250 to $500 per month each into individual retirement accounts, she said, but they haven’t yet opened the accounts and for now are saving what they can in a taxable account.
Many couples with a stay-at-home spouse who doesn’t earn a paycheck face even greater challenges, financial experts say.
“Every year out is lost saving potential,” said Kathryn Sollman, founder of 9 Lives for Women website. “All the women who told me early into their hiatus that they were never going to work again, they’re all working again. They start to realize that even though they might have had a comfortable existence, when they start sending three kids to college and looking at retirement lasting 30 years or more, one income isn’t going to do it.”
So how can stay-at-home parents plan for retirement?
Open the right accounts. A spousal IRA allows couples to save up to $6,500 ($5,500 for those under 50) for 2015 in the name of a spouse with little or no earned income. If you’re doing self-employed side jobs in addition to taking care of the kids, check out whether a Solo 401k or a SEP-IRA, which allow for higher contributions, makes more sense.
Plan for Social Security. Spousal Social Security benefits were designed to shore up retirement finances for spouses who spent years out of the workforce, but they are capped at roughly half of the primary earners’ benefits. For many couples, this means much lower lifetime benefits compared to couples who earned two paychecks. Consider doing all you can to maximize your joint lifetime benefits and explore a deferred fixed annuity if your guaranteed income still comes up short.
Rethink life insurance. Add up not only the cost to replace the parenting and household duties, but also an estimate of what the spouse is likely to earn once back at work. Also consider laddering a couple of policies with different terms to maintain flexibility, said financial planner Theresa Wan.
Think longer term. If staying home means you are impoverished in old age, that’s a huge burden for your kids. Jumping back in, say, five years earlier could substantially boost your retirement income and Social Security benefits.
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On the flipside, if you radically alter your lifestyle to accommodate a one-income budget and still save for retirement, the payoff can be rewarding as well as enriching.
“Having one income forces (a couple) to step outside the stereotypical mold,” said Sheryl Garrett, a financial planner and founder of the Garrett Planning Network. “They can eliminate a car and enroll in fewer costly activities, and the tradeoff is doing more together as a family.”