Originally published on ShriverReport.org – April 18, 2014
The findings of a new Pew Research report are quite contrary to what had seemed to be the rise of more women either entering or already in the workforce. According to the study, up until 1999, the number of stay-at-home mothers was declining significantly since 1967, when roughly half of all moms stayed at home. In 2012, 29 percent of moms stayed at home, which is a 6 percent increase from 1999.1
As I read through the research and pondered this perplexing phenomenon, I thought that one reason for this increase may have been due to economic factors; such as job layoffs combined with a reduction of job openings. In addition, many experienced salary cuts and weighed the rising cost of child care to their net after-tax take-home pay and decided it made more financial sense to stay home until the children entered school full time.
This situation may pose additional financial concerns, especially in a crisis of death, divorce, job loss, illness or disability of the primary breadwinner. So what are some steps you can take to protect your family financially should you decide to stay home to raise your children?
It is most important to have a risk management plan in place to help protect or minimize financial damage in the event of a crisis. Several reports illustrate a higher statistical probability or greater chance of becoming disabled between the ages of 25 to 50 than early death.2 Thus, it’s important to protect the income of the sole breadwinner, especially if there is only one working partner. Many group employer benefit plans offer short and long-term disability; it is important to take advantage of this coverage.
But having disability insurance is not enough. The primary breadwinner should also have a life insurance policy on his or her life with the other parent as the beneficiary. The amount should be enough in present value dollars to protect the future income needed to replace not only the lost income, but also to include education costs for your child or children, and the annual contributions that would have been made to a retirement plan had the breadwinner continued working. Further, an annual inflation calculation should also be used in order to arrive at the face amount of insurance needed to fund the future needs. Sometimes life insurance is also available more affordably through the employer benefit plans. A financial planner can help you determine the appropriate and most cost-effective solution.
Don’t forget to pay yourself first! If you choose to be the at-home caregiver, continue to contribute to a retirement plan. It’s likely there is income in the household that will allow you to contribute to an IRA or other retirement vehicle (consult your tax advisor as he or she can help guide you to which is best for your specific situation). Also, if you weren’t caring for your child, there would be a caregiver expense. You should discuss with your spouse or partner, the strategy of setting aside a portion of the household income in a separate account for yourself, as a “salary” of sorts for the work you are doing in the home.
Next, continue to invest in yourself through education and sharpening your skillset by attending online classes when you are able. Growing your knowledge and being in-contact with those in your industry will give you a leg-up for when you eventually return to the workforce. There are also many careers or jobs today that allow you to work from home. You may even want to establish your own business from home. For some inspiration, consider these very successful Mompreneurs: Bestselling Author of the “Harry Potter” series J.K. Rowling; Mary Kay Ash, founder of Mary Kay Cosmetics; and Debbi Fields, who partnered with her husband in selling homemade cookies, which is now the multi-platform retail business Mrs. Fields.
The reality is that nine out of 10 women will be solely responsible for their finances at some point in their lives. 3 Therefore, you should establish or maintain your financial independence even while you choose to stay at home to raise your children. The statistics are clear and too many women suffer by not putting their financial future first! Thus, it’s important to have a contingency plan in place, before you experience some crisis. We never know what twists and turns life may have in store for us. Maintaining financial independence affords you many choices you wouldn’t have otherwise. Best of all, it provides peace of mind.
Kathleen A. Grace, CFP®, CIMA® is a Managing Director at United Capital. Read more about her book on her website www.PrinceNotSoCharming.com or to purchase the book click here. A portion of the net proceeds of the book Prince Not So Charming® will benefit Women In Distress of Broward County, Inc. To learn more and provide your support please visit: www.womenindistress.org
2 NAIC 1985 Commissioner’s Disability Income Table A- http://www.disabilitycanhappen.org/chances_disability/disability_stats.asp
3 National Center for Women and Retirement Research