Should you stay home with the kids?

I did, and don’t regret it for a minute. It was tons of fun and a chance to do all the things I hadn’t done in my own childhood. Staying home with your children is not primarily a financial decision, but it does have some profound financial consequences. So as you are making decisions about whether you will be a stay-at-home parent for some portion of your child-rearing years, here are some financial points to consider.

  1. Consider your Social Security benefits. Sure, collecting Social Security seems like a million years away. But since benefits are based on your entire record, taking into account your 35 highest earning years, taking 20 years, or even 10 years, out of your lifetime earnings record can hit hard on your future benefits. (see more information here). Stay-at-home parents who later get a divorce can have a much bleaker retirement picture than someone who has worked consistently. If you have been married at least 10 years, (or stay married), you will be eligible for spousal benefits—generally, ½ your spouse’s primary benefit. However, this may be much less than if you had maintained employment at a relatively high earning job.
  2. Consider disability benefits. If you do not have a recent work history and become disabled, you may not be eligible for Social Security disability payments. If you are not employed, you will probably not be able to get private disability insurance either, since generally this insurance is based on earning. There are some ways to approximate disability insurance and protect you, but it’s complicated—contact me to discuss this if the situation applies to you.
  3. Evaluate your life insurance. Many people have life insurance primarily through their workplace. If you are not employed outside the home, consider what replacing your services would cost your family, and investigate appropriate life insurance.
  4. Be careful about working for your spouse’s business for free.  If the spouse owned the business before marriage, you are probably not going to be entitled to any share of the business’s worth in the event of divorce. Also, you are not building up Social Security benefits. Finally, if you are unpaid you will not have an employment record should you need to borrow money, secure credit, or purchase disability protection.
  5. Keep some credit in your own name (not joint). Too many people decide to cancel all those old individual-account credit cards in favor of joint accounts when they marry. Or let those accounts lapse over disuse. In the event of the spouse’s death or disability, or divorce, a stay-at-home parent may not be able to qualify for a credit card. Always keep one major credit card as an individual account, and use it from time to time to keep it active. The easiest cards to get are department and discount stores, but one with a significant limit that will allow you to book travel, rent a car, or pay for a hotel or emergency daily expenses is the one to have.
  6. Know how staying home will affect your student loans. If you are on a repayment forgiveness plan because of working for a non-profit, your loans may kick back to full repayment. Be sure you calculate what this might cost you. I have seen cases where leaving non-profit employment would increase loan repayment by the mid-five figures!
  7. Start a small business and run it like a business. It’s much easier to take a part-time business to full-time than it is to start from scratch.
  8. Keep your network and your professional contacts alive. Same reason as #7.
  9. Take every opportunity to upgrade your professional skills. At some point the baby goes to college. You will have the rest of your life. Upgrading skills keeps you current and marketable. Most people will eventually return to work.

Sure, this is disaster planning, and my sincere hope is that you will never have such a disaster. All decisions require weighing the choices and consequences, however, so do some planning and–enjoy your children.




Posted in Cash flow & Spending, Divorce Planning, Retirement Planning.

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