The Price of Staying Home With Kids

After decades of decline, the number of stay-at-home moms is on the rise. A recent Pew Research analysis of census data found that 29% of U.S. mothers stayed home with kids in 2012. That’s up from 23% in 1999, the trough of a drop-off that began in the 1970s. Visit a park on a weekday morning and you’ll see that dads, too, are swapping desk chairs for high chairs. Some parents are at home for lack of a job. Those there by choice say you can’t put a price on sandbox time with a preschooler or heart-to-hearts while chauffeuring a teen. But parents should factor in costs beyond the commute, child care and a professional wardrobe before making the decision to stay home.

A lapse in retirement saving, for instance, can devastate a nest egg. A 25-year-old earning $40,000 a year and saving 13% of her salary (including any employer match) can expect to replace 50% of her income at retirement, according to a study by T. Rowe Price. But take three years off, and the replacement rate falls to 43%; five years, and it drops to 39%. To make up for a three-year lapse, you’d have to save 15% of your salary thereafter, or 17% of your pay after a five-year hiatus.

If you decide to take time off, continue to save in a spousal IRA. The account can be funded by the working spouse, but it is in the nonworking partner’s name. You can open a traditional or Roth IRA as long as you’re married and file a joint return. Your lower family income may make you eligible for a Roth if you weren’t before you stayed home. Consider whether a lower income—and hence, a lower tax bite—makes converting a traditional IRA to a Roth worthwhile.

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Check whether the stay-at-home parent will be eli­gible for Social Security benefits at retirement age. You’ll need 40 credits, requiring at least ten years of working and paying into Social Security. Consider working a little longer if you are close, says David Stull, a certified financial planner with Storehouse Financial, in Fort Worth. The Social Security Administration considers the 35 years of highest earnings to figure benefits, so years with zero earnings will cost you. Even part-time work can have a big impact down the road. Stay-at-home parents who don’t qualify for benefits on their own are entitled to up to one-half the benefit of the working spouse.

Don’t neglect life insurance on the parent at home (it’s unlikely anyone else will work that job for free). And make sure the breadwinner has adequate life and disability insurance. But the best insurance for a stay-at-home spouse is the ability to find a well-paying job, says Marina Goodman, a certified financial planner and investment strategist at Giralda Advisors, in Madison, N.J. Professionals who stay home should maintain their credentials and continue to network. When kids are older, consider part-time work or volunteering. “You want to know you can go back to work if you have to,” says Goodman.

Budgeting is key for a two-income family downscaling to one income. If the breadwinner becomes unemployed, there will be no backup income, so you’ll need a bigger emergency fund, for starters. Try living on one income for a while before you take the plunge, says Stull. “That’ll help you decide if you want to make the sacrifice.”