Making the decision to transition from the workplace to becoming a stay-at-home caregiver can be a scary decision. There are many pros and cons to consider with both choices. Weighing and discussing these options with your spouse/ partner (while potentially difficult at times) will help you both to feel better supported by the other and more financially sound.
Reviewing these four financial considerations before deciding to make the transition can help you lower stress, have a smooth transition into becoming a stay at home parent and will help you down the line should you decide to work or not.
1. Save For “Your” Retirement:
For many, the arrival of baby, means a shift in focus away from the self and to the child. Be sure you have planned for your retirement and continue to plan for your retirement prior to and during any education planning you may do for your child.
Additionally, you will need to consider how you will continue to save for your retirement after you make the transition to becoming a stay-at-home parent. Employer-sponsored plans make it very convenient to save for retirement through automatic paycheck contributions and employer matches. However, once you leave the workplace, the responsibility to adequately save for your retirement shifts to you.
Don’t forget to make yourself and your future retirement a priority and start planning now ways in which you will continue to plan for your retirement. This can be accomplished either through a spousal IRA or taxable brokerage account. Keep in mind, that should you decide to start a business at home or work freelance type projects, you may be eligible for other retirement savings accounts like: an individual 401(k) plan, a SIMPLE IRA or a Simplified Employee Pension (SEP).
Additionally, you will want to consider what to do with your previous employer’s retirement plan. Your options include: rolling it over into a Rollover IRA, cashing it out or leaving it in your employer’s current plan. The best choice is typically not to cash it out, you’ll be hit with hefty tax penalties for early withdrawal.
Also, don’t forget to maintain your own credit score. Having credit in your own name will help you if you were to get a divorce or become widowed, and it will also keep you financially independent and aware of household finances.
2. Review and Edit Your Budget.
As your family transitions from a two-income household to a single income household supporting a new child, your finances will obviously take a hit. However, staying home means you’ll be saving money in some areas. Also, you will be saving a significant amount of money in not paying for childcare and you may be able to cut additional costs when you have more free time to clip coupons, comparison shop and cook at home.
Nevertheless, transitioning from the workforce will likely make your budget a little tight. Take this opportunity to discuss with your partner which expenses can be cut and how you’ll budget your new lifestyle.
At this point having an emergency fund will be even more important now that one spouse is not working, so make sure you build up your savings and keep that in your plan as you make the transition.
3. Check Your Insurance.
Your 401(k) isn’t the only work benefit you’ll have to replace when you become a stay-at-home parent. If you were participating in your employer’s health plan, you’ll need to consider where obtaining health insurance for yourself elsewhere. Your partner’s health plan may cover you, but if you’re not eligible, check out COBRA coverage to extend your employer coverage temporarily or consider individual insurance plans. You will also need to consider and weigh the potential financial costs associated with each choice.
Life insurance for both you and your partner are still important as well as your partner’s disability insurance. If you are moving from being a two-income household to a one income household, the financial risk to your family is increased with the possibility of your working partner experiencing a disability.
Additionally, many stay at home parents don’t think they need life insurance any longer since they are no longer earning an income. However, this could not be further from the truth. If something happens to you, your partner would need to arrange for childcare and possibly pay for a housekeeper and other services a stay at home parent provides. This means life insurance is still necessary for both parents.
4. Stay Competitive.
Even if you currently do not see yourself returning to work there may be circumstances outside of your control which will require you to return to the workforce. These circumstances include: reconsidering your decision once your children enter school, divorce, death, disability, for the overall economy. In any case, it is good to keep your options open and staying competitive/ marketable will make it easier should you need to or decide to return to the workforce.
Consider attending seminars, taking a class in your field, or volunteering to maintain relevant job experience for your resume. Don’t forget to continue to network and stay in touch with your former co-workers. This is an easy way to maintain friendships and meet new people while staying connected to the job market.
As you can see the decision to become a stay-at-home parent has the potential to be overwhelming. However, through opened dialogue, carefully weighing financial considerations, and planning ahead you can reduce the stress and have a more successful transition to becoming a stay-at-home parent.
This information is general in nature and may be subject to change. Financial professionals and other representatives are not authorized to give legal, tax or accounting advice. Applicable laws and regulations are complex and subject to change. Any tax statements in this material are not intended to suggest the avoidance of U.S. federal, state or local tax penalties. For advice concerning your individual circumstances, consult a professional attorney, tax advisor or accountant.
Securities offered through NMS Capital Advisors, LLC, Member FINRA/SIPC. Advisory products and services offered through Castle Wealth Advisors, LLC, a Registered Investment Advisor. NMS Capital Advisors, LLC and Castle Wealth Advisors, LLC are unaffiliated entities.