Being a stay-at-home parent can offer all sorts of advantages like hearing your child’s first words and being there for all of their development. However, there are some things to consider if you are about to take the plunge. Check out the financial features below that can sometimes fall under the radar, but shouldn’t be forgotten.
1. Less Income
It may seem obvious, but your household income is going to change if one parent is transitioning out of a job and into the home. Plenty of work is still being done, but you or your partner will not be paid for it. It’s a good idea to calculate how the loss of income will impact your lifestyle and create a new budget to account for the change. If you can do this before the transition and try living on the new budget beforehand, this can help you save up money while adjusting to the new lifestyle and avoid a slow erosion of your savings or, even worse, going into debt.
2. Life Insurance Needs
When you leave the workforce, you may be leaving some insurance benefits as well. Because your death would result in financial hardship for your family, chances are you still need life insurance as a stay-at-home parent. It’s important to consider the cost of replacing the stay-at-home parent, including the cost of childcare. You can use a calculator to determine how much life insurance you need.
3. Retirement Impact
Getting off an employer-sponsored plan can be a big hit to your retirement savings. It’s important to still think about setting aside money for retirement in the stay-at-home parent’s name. You can set up an individual retirement account and continue to build a nest egg.
4. Social Security Benefits
Similar to retirement income, your Social Security earnings will take a loss when you leave the traditional workforce. Benefits are calculated based on your highest-earning 35 years of employment and years without a paycheck means that zeroes get factored into the equation. No credit is given to full-time parents who do not earn an income, so it’s important to understand that time out of the workplace can mean lower Social Security benefits down the road.
5. Your Return to the Workforce
Not every feature is a hard cost or has a distinct price tag. While it is difficult to nail down a specific figure, leaving work for many years can make you less attractive to future employers should you want to return to your career. When you are making your overall financial plan, it’s important to remember that you may return to a lower income or responsibility level than you previously had. Some ways to combat this include taking on freelance projects or taking classes to keep your skills fresh.
By no means should these hold you back from being a stay-at-home parent if that’s a priority for you and your family. But it is important to go into the tradition knowing the potential financial impact so you can prepare and allocate funds appropriately. (It may also be that it’s not an all-or-nothing proposition. Many parents cut back to part time or find ways to work from home, and those may also be worth investigating.)
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