How to plan for your retirement when you are a stay-at-home mom?
Photo by Ivan Samkov
Have you ever wondered if it is even possible to save for your retirement when you are taking care of the house, the kids, and everything else at home while not working or making any money at all? You are not alone if that has crossed your mind.
Financial planning is still the key whether you are retired or a stay-at-home mom. As a stay-at-home mom, some unique challenges come with retirement, and planning for them can sometimes be difficult. Below I have outlined some tips to help you get started on the right path of preparing for your retirement.
Retirement savings options for stay-at-home moms
If you’re a stay-at-home mom, it’s likely that you’re not putting a lot of money into your retirement savings. This is because most stay-at-home moms don’t have access to retirement accounts through their past employers.
Fortunately, there are several other options for stay-at-home moms who want to save for retirement. Here are some of the best:
Take advantage of your spouse’s 401(k)
If your husband has a 401(k) at work and they don’t need the full amount to cover their retirement savings, consider contributing to their plan. If an employer match covers them, this is a no-brainer because it’s essentially free money. Even if they aren’t getting any matching funds, it’s still worth contributing to the plan so that your money grows tax-deferred until you withdraw it in retirement. Make sure you keep the 401K contribution limits in mind before you start saving. If your spouse isn’t saving enough in his own account (and many people aren’t), it’s worth asking him if he’d be willing to let you contribute some money toward his retirement savings.
Set up a Spousal IRA
If you’re married and your spouse doesn’t work, it is possible for you to open an Individual Retirement Account (IRA). Couples who file taxes jointly can open an IRA for the non-working spouse. As long as your working partner makes enough money to cover the annual contribution limit, the non-working partner can make their own IRA contributions.
Spousal IRA contributions may be tax-deductible depending on your income, similar to the working partner’s IRA calculation. If one partner has a retirement plan at work, spousal IRA contributions can be fully deductible if your modified gross income is $198,000 or less. High earners can make a non-deductible spousal IRA contribution.
Open a taxable brokerage account
If you and your spouse have maxed out your spousal IRA and 401(k), consider opening a taxable brokerage account as well. You can either open this account in both your names or just one name — depending on what best suits your situation. While you’ll pay taxes on the money you set aside, as well as any realized capital gains, you might find that this is just the thing to maintain your savings and set aside a bit extra money for your long-term growth.
How much do you need to save for retirement?
Retirement isn’t a race, but it is an important milestone in your life. The earlier you start saving for retirement, the more time your money has to grow.
Retirement savings are important because they help you maintain your standard of living when you’re no longer working. If you don’t have enough money saved up, you may have to adjust your standard of living or work longer than anticipated.
The answer to your retirement savings depends on a variety of factors. How much you’ll need to save is determined by how you want to live in retirement and how much life insurance coverage you want to have. The best way to determine your target retirement savings amount is to work with a financial advisor who can help you create a detailed savings plan tailored to your individual needs.
The following are some basic guidelines for determining how much you’ll need to save for retirement:
How much money will you spend in retirement?
This should be based on your current expenses but also consider any changes that may occur — such as the cost of health care and other expenses associated with aging — and the fact that most people tend to spend more in retirement than when they were working full time.
How long will you live after retiring?
The longer, the better because it means more years of receiving income from your investments (which would otherwise be spent). The average life expectancy at birth is currently 72 years; however, if you’re healthy, it’s possible that you could live longer than average. Your retirement savings goal should consider this by including additional funds beyond what’s needed just for basic living expenses.
Being a stay-at-home mom is a great job but comes with significant challenges. Many women find it hard to save money because they have no income and don’t have much time to do anything outside the house. It’s important to plan ahead so that you can enjoy your retirement and not have financial worries when you are older.
Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He has over three decades of experience working with investments and retirement planning. Over the last 10 years, he has turned his focus to self-directed accounts and alternative investments.