With the rising cost of living in our current economy, the inner struggle of whether or not to be a stay at home parent is very real. This has historically been a deeper struggle for mothers but it’s increasingly the case for men as well and there’s really no escape from this tension in parenthood.
Aside from the immediate financial concerns of a one income household, what about the long term financial security of the family? Will a career break have negative effects on that? Will it be detrimental for your career momentum or saving toward your child’s education or your retirement?
The truth is, there are going to be stresses and trade-offs no matter how you slice it. However, if the positives outweigh the negatives in your family’s circumstance, it may be a worthy while decision. Let’s take a look at a few helpful insights on the matter:
Financial Advantages
An obvious advantage is that your commuting costs will diminish to almost nothing and since most of your meals will not be eaten at home, you’re likely to save a little on dining out as well. The most significant financial advantage though, is the reduction of child care costs. According to Child Care Aware of America, the annual cost of center-based child care for an infant averaged at an amount that was higher than the annual tuition costs of public colleges in 31 states. That’s a significant expense even for two-income households.
Retirement Savings
Bill Hunter, director of Personal Retirement Strategies and Solutions at Bank of America Merrill Lynch says, “your spouse should try to maximize his or her contributions if possible, to save for both of you” if you’re unable to contribute to an IRA or 401(k) due to staying at home.
Additionally, your spouse can contribute to a spousal IRA on your behalf. If it turns out that you are able to work while staying at home, you may also be eligible to a SEP IRA for small business owners.
College Fund Savings
Depending on how substantial the one income is determines what you’re able to accomplish in this area. Many people are able to catch up on this savings plan when they go back to work after a few years, but “that should be a second priority after saving for retirement,” Hunter says. That may sound selfish, but you’re on your own when it comes to providing for yourself after you stop working. Of course, the goal is to be able to save a college fund, but there is more help available for that than there is for retirement income.
Earning Power
The questions is, “how will taking time away from my career affect my earning power later? That’s a legitimate question and concern. This can be a tricky thing to navigate. Men and women alike should deeply consider the conditions of the job market when it feels like the right time to resume their career. Sometimes the transition back into a comparable job isn’t easy. The good news is that an increasing amount of employers are creating programs for the purpose of making that transition a little less difficult. Networking is a great way to stay connected even when you’re not working and “doing some work from home will give you a foot in the door when you’re ready to return,” says Michael Liersch, head of Behavioral Finance at Merrill Lynch Wealth Management.
In the end, it comes down to taking a hard look at whatever challenges you see and facing them head on to make the best possible decision for your family.
“People who acknowledge and embrace the tradeoffs—on either side—tend to be the most content with whatever they decide.” – Bill Hunter, director of Personal Retirement Strategies and Solutions at Bank of America Merrill Lynch