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Don’t Forget About Mom: Stay-at-Home Spouses and Retirement

Don’t Forget About Mom: Stay-at-Home Spouses and Retirement

May 11, 2020
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She has the toughest job of them all.  She runs the household, manages the family budget, makes sure everyone is where they need to be and carries the lion share of rearing the children…all before 9 AM.  She is Mom.  The most revered person in the family.  And she gets paid more than….well, no one.  Perhaps, not one penny.  

Sure being a stay-at-home mom has its rewards but it is definitely a 24/7 labor of love.  Time alone is a rarity, so time to think about retirement is nonexistent.  Yet, families that choose to have one spouse stay at home to rear the children, need to build retirement assets for that spouse as well.

The Six Million Dollar Mom

Remember the mid-1970s show called The Six Million Dollar Man?  Okay if you are under the age of 40 you probably do not.  I am dating myself here, but it was a show about a former astronaut involved in an accident and put back together using bionic parts for how much?  Approximately $6,000,000 (but that is classified).  

That was definitely a lot of money in 1974. But not so much today, when you consider that the stay at home spouse may in fact be giving up as much as $6,000,000 in potential earnings over the course of their working life when accounting for raises and inflation.  

There is no way to put a price on the value of mom (or dad) staying at home to manage the household.  But, it’s reasonable to examine the impact of lost earnings on things like retirement.  If an individual spends 30 years outside the workforce, they will potentially miss out on opportunities to participate in their company’s 401(k) or other retirement plans as well as contributions to social security.  That means less income for mom and dad when they decide to retire.

Making Stay At Home Pay For Retirement

Fortunately, the IRS does not penalize the stay-at-home spouse when it comes to retirement.  Consider the use of a Spousal IRA.  The abbreviation IRA stands for Individual Retirement Arrangement, which is a form of retirement plan for individuals.  

You do not have to be employed to contribute to an IRA.  The IRS allows the compensation of the working spouse to fund a Traditional or Roth IRA depending on your income level.  As long as the working spouse has sufficient earned income to cover the contribution, spouses may contribute up to $5,000 annually to an IRA.  That eligible amount jumps to $6,000 a year if you are over the age of 50.  Of course, each individual situation will vary and may impact the amount you can legally deduct on your tax returns.  Always consult your financial advisor or a tax professional if you have questions regarding your potential contribution limits and deductions.

See the Difference Saving Can Make

Take for example the family that decides to set up an IRA for their stay-at-home parent at age 30 contributing $5,000/yr until age 50 and then $6,000/yr until age 65.  In our example, we are going to assume a 9% return annually.  At age 65, that account would have just over $1,200,000 for retirement.  If the working parent has been contributing to the 401(k) during their working years, they will have a very comfortable retirement.

$5,000 a year probably sounds like it is pretty tough to do at first, so I encourage folks that want to save to start small.  Saving even $25 to $50 a month can go a long way to building you a solid retirement.  Have a $100 to sock away each month?  You may have almost $300,000 at age 65 if you are now 30.

The key with any savings goal is start now.  I wish that I had been wiser with the money I had when I was younger.  I would have had time and compounding interest on my side.

Show Mom Some Love

Commit to provide financially for the the stay-at-home parent in your family life by establishing a Spousal IRA. There may not be better way to demonstrate that you care about your family’s future than to take action and prepare for retirement years.  

Considering giving a Spousal IRA for Mother’s Day?  Great! Just don’t forget to pick up some flowers and a box of chocolates too.