When you first plan on staying home with your children, the first thing you do is take a look to see if you can afford it. You cut back on cable TV, buy older cars, lose retirement benefits…
Whoops! Most families about what being a stay-at-home mom or dad does for their retirement income. The years spent not working have a huge impact however, when you decide to retire. Retirement planning is very important for stay at home parents.
What Retirement Benefits Do Stay At Home Moms And Dads Lose?
Let’s start by looking at what you’re losing for your retirement. No 401(k) with your employer contributing towards it. No pension, although those are getting scarce anyhow. Less money available to put towards retirement. You aren’t putting money into Social Security, so your benefits will be lower.
According to this article on Fortune, the financial loss for taking a 5 year break from work can cost a mom $467,000 in income, wage growth, and retirement assets on average. A man would lose even more on average.
Ouch. Being a stay-at-home mom or dad means you lose a lot for your retirement, although not every family will lose so much. There are a lot of different factors that go into how much you would lose.
Fortunately, there are steps you can take to prepare for your own retirement. It means more sacrifices, as you’ll have to put more money aside, but better to provide your own retirement than be a burden.
Save For Retirement With A Spousal IRA
If you don’t work at all, you will want to consider having your spouse contribute towards a Spousal IRA. You may want to talk to a professional to determine the best type of IRA. According to the IRS website, up to $5500 as of 2018 (check for each tax year) may be contributed to a spousal IRA in a given year, assuming you are married and filing a joint return. The limit goes to $6500 when you turn 50. See this post on the IRS website for more information on IRAs.
Of course, it’s hard for most families to come up with $5500 a year to be put towards retirement. Saving while working is relatively easy; it can come out of the paycheck before you ever see it. It doesn’t hurt much. Saving deliberately is much harder.
Figure out a monthly dollar amount you can contribute so that it goes throughout the year. Don’t hurt your family doing this, of course, but do what you can to contribute to your retirement savings. The time will come when the money will be important to you.
Don’t Forget Old 401(k) Accounts
If you had a 401(k) account with a previous employer, take advantage of it. Don’t cash it out or leave it sitting. Roll it over into an IRA. Your investment advisor can help you, or you can read up on it. Rolling over your 401(k) into an IRA will give you a lot more flexibility with the investment.
There’s No Room In The Budget!
It’s often hard to find room to contribute to a stay at home parent’s retirement fund. Really hard. Living on a single income is financially challenging on its own, even without adding in retirement contributions.
See if you can fit even small contributions into your budget. I’ve seen $100 a month suggested, but for many families, that’s a lot of money. Great if you can do it, but a frustrating number to hear if you can’t.
My personal preference if the budget can’t spare anything is for the stay at home parent to find a way to earn money from home, and put some of that aside for retirement. Not only will this help when you retire, but it keeps your skills up for if you go back to work outside the home someday, as most do.
Working at home also improves your family’s overall financial stability. The fact that I work at home has kept us from financial disaster in the past. Things were still hard, but not completely impossible to deal with.
Get A Remote Job And Contribute To Your Retirement
If all you want to do is be a stay at home parent, you may not want to find a job, whether it be part time or working at home, but it is an option to keep money going towards your retirement. It ensures that some money is going toward Social Security. Once the kids are in school, a highly flexible job can keep your skills sharp, too.
You have a lot of options for remote work these days. If the job involves significant computer use and very little face to face time with people, there’s often a remote option for it somewhere. You can start your hunt on my remote job board.
Some remote jobs offer retirement benefits too. They usually require that you work full time to get benefits, just as with most outside the home jobs.
If your remote job doesn’t offer retirement benefits, you can still set up an IRA for yourself and contribute to that from your income.
Start A Home Business And Use A SEP-IRA Or Individual 401(k)
Running a home business means you can start a SEP-IRA or individual 401(k) for yourself. This may allow you to contribute more to your retirement than you could to a Roth IRA, depending on how much your home business earns.
The basic rules are that you cannot contribute more than 25% of compensation or $55,000 a year (as of 2018), whichever is less. The limits are adjusted for cost of living each year. Remember that this includes all contributions to a retirement account.
There are special rules to determine how you contribute to a SEP-IRA if you’re self employed. It’s on the complicated side, and if this is an issue for you, talk it over with a tax professional.
Get Life Insurance For Both Of You
Life insurance doesn’t necessarily have to do with retirement, but it’s an important safety net for your family. Get it for both of you.
If the spouse who works outside the home dies, you get some money that will help you get through the financial side of the loss. If the stay at home parent dies, the money helps the family deal with the changes, such as a possible need for childcare that wasn’t there before.
But I Didn’t Have An Income! Why Will I Need One When I Retire?
Many stay at home moms and dads don’t feel a need to have a retirement account in their names. They trust their marriage and their spouse. Life is good. Death, disability, divorce, unemployment… these things don’t scare you.
But they should.
No one goes into a marriage assuming they will later divorce, but it happens to many. If the retirement accounts are all in one spouse’s name, splitting them can be complicated. It’s possible, but it’s not easy and some give up on it.
Never assume that things will remain the same forever. Even beyond the issue of divorce, it’s easier to have money in each spouse’s name in case one has to go into long term care. Life throws curve balls. Be prepared.
This is not a matter of trust. It’s about smart financial planning.
If everything goes well, it’s still good to have retirement accounts in both spouse’s names. You can contribute more to your retirement this way. Having more money available to you and your family in retirement is a very good thing.
If at all possible, don’t neglect the retirement planning just because you’re a stay at home mom or dad. The financial benefits to your family are too good to pass up.