What Does Being a Stay-at-Home Parent Cost You?
Most working parents can relate to the desire to be with their children at every milestone by being a stay at home parent. But the choice to stay at home can be difficult. On the one hand careers often provide satisfaction and a dual income that is important to the family. On the other, there can be financial concerns. Can the family afford to live on just one income? How would a career break affect our family’s long-term financial security? What about our ability to save for our children’s education — or our own retirement? Will I lose career momentum if I take a few years off?
There are pros, cons and tradeoffs in every situation, but there are ways to alleviate some of the stress and prepare including:
- Will taking time off to stay home hurt my earning power later? Seventy-three percent of women seeking to resume their careers after spending several years at home had trouble finding a comparable job, according to a study conducted by the Center for Talent Innovation in 2010. The study found those who were hired lost 16 percent of their earning power. You should consider what the job market will look like when you are ready to return to work. The good news is that more and more employers are creating programs to smooth the return to work for stay-at-home parents.
- Are there any financial advantages to having one parent at home? Short answer is yes. The huge advantage is that you won’t be on the hook for child-care expenses. In 2012 the average annual cost of having an infant in center-based care exceeded annual tuition and fees at a four-year public college in 31 states and the District of Columbia, according to the advocacy group Child Care Aware of America.
- Could my career break affect our retirement savings plans? If you’re not able to contribute to a 401(k) or an IRA, your spouse should consider maximizing his or her contributions if possible, to invest for both of you. Once you each turn 50, you can take advantage of a catch-up provision that allows you to contribute greater amounts to your 401(k)s or IRAs. Additionally, your spouse can also contribute to a spousal IRA for you.
- What about Social Security? Will my benefits be reduced if I don’t work for a few years? Social security benefits are calculated based on your 35 highest earning years, so leaving the workforce for a few years will have a limited impact on your benefits. You could potentially feel some impact if you lose earning power on your return to work and don’t catch up over time.
- With only one income, can we still save for our kids’ college education? In most cases you can catch up when you go back to work. Keep in mind that college should be a second priority after saving for retirement because your child can get help paying for school, but you’re on your own when it comes to retirement.
In the end, your heart is going to have a big say in these decisions, but understanding how each choice can affect you financially will help you make a more clear decision. Regardless of your decision, make sure you have a plan for your short-term and long-term finances.
For more information, contact The Menashe Morley Group in the Rancho Santa Fe office at 858-381-8113. The Menashe Morley Group, serving the community for over 30 years: David Menashe is a Senior Vice President and Wealth Management Advisor, Bruce Morley CRPC
is a First Vice President and Wealth Management Advisor and John Naviaux is a Vice President and Wealth Management Advisor for Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Merrill Lynch Wealth Management makes available products and services offered by Merrill Lynch, Pierce, Fenner & Smith Incorporated, a registered broker-dealer and member SIPC, and other subsidiaries of Bank of America Corporation.
This material should be regarded as (general or educational) information on (Healthcare / Social Security) considerations and is not intended to provide specific (healthcare / social security) advice. If you have questions regarding your particular situation, please contact your legal or tax advisor.
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