Life Changes

6 Questions to Consider Before Becoming a Stay-at-Home Parent

From the impact on your finances to the effect on your marriage, you'll want to think about these items.

by Michelle Crouch - December 25, 2017

Are you thinking about leaving your job or switching to a home-based career to stay home with your children? You’re not alone. There were roughly 5 million stay-at-home moms and 209,000 stay-at-home dads in 2016, according to the United States Census Bureau.

But is it the right option for you? Answering that requires you to weigh more than just the loss of your paycheck, says Mary Gresham, Ph.D., a clinical and financial psychologist in Atlanta. “It’s a complicated psychological and emotional decision that will have a big impact on you, your family, and your marriage,” she says. “There’s a lot to think about.” Here are six questions to help you make the best decision.

1. Can you afford it?

According to James L. McKown III, CFP®, Financial Planning Manager at Wells Fargo Advisors, the most important question, of course, is whether your family can afford to live on one salary. Sit down with your spouse and do some honest budgeting. Can you maintain a similar quality of life on one income? What are you willing to give up? You can subtract work-related expenses such as commuting and child care. And losing your salary may bump your family into a lower tax bracket. But it’s important to keep in mind the long-term financial impact as well. A report released in 2016 by the Center for American Progress found that each lost year of employment actually costs a family as much as three times a parent’s annual salary when you factor in lost wage growth and retirement assets over many years.

2. How will you save for retirement?

According to the 2015 Aegon Retirement Readiness Survey, 1% of stay-at-home moms and dads in the United States say they do not have a plan for retirement. Putting retirement on the back burner is a mistake, both because of the power of compounding potential earnings that saving early provides and because you also lose Social Security contributions when you don’t have earned income. McKown says, “Talk with your Financial Advisor about the options you have for the assets you left in a former employer’s qualified retirement plan [QRP] as well as any IRAs you have. You may want to consider consolidating your financial assets with one provider. As a spouse with little or no income, you can still contribute to your IRA as long you file a joint tax return. Your total contributions to all of your Traditional and Roth IRAs cannot be more than $5,500 if you’re under age 50. If you are age 50 or older in a particular tax year, the maximum is $6,500. If the compensation was less than the maximum contribution limit, you can contribute up to 100% of the taxable earned income for the year.”

Please keep in mind that rolling over assets to an IRA is just one option for your retirement plan. Each of the following options is different and may have distinct advantages and disadvantages.

  1. Roll over assets to an IRA.
  2. Leave assets in your former employer’s QRP, if plan allows.
  3. Move assets to your new/existing QRP, if plan allows.
  4. Cash out or take a lump-sum distribution.

When considering rolling over assets from a QRP to an IRA, key factors that should be considered and compared between the QRP and the IRA include fees and expenses, services offered, investment options, when penalty-free withdrawals are available, treatment of employer stock, when required minimum distributions begin, and protection of assets from creditors and bankruptcy. Investing and maintaining assets in an IRA will generally involve higher costs than those associated with QRPs. You should consult with the plan administrator and a professional tax advisor before making any decisions regarding your retirement assets.

3. Do you have a safety net?

Living on just one income makes your family more vulnerable if the working spouse loses his or her job. McKown says, “Make sure you have a robust emergency fund that will cover six months of living expenses. And budget for enough life insurance to cover your family if either you or your spouse becomes disabled or dies. Even though you would no longer have an income to protect as a stay-at-home parent, your policy should cover the cost of the household help and child care that would be necessary if something should happen to you.”

4. How will the choice change your relationship with your spouse?

Becoming a financial dependent, even if you’re taking on more day-to-day responsibility for the home and family, can put a lot of stress on your marriage, and it’s easy for resentment to build. To help equalize the relationship, Gresham recommends that the stay-at-home spouse take over most of the money management. “If you don’t have earning power, at least you have management power, so you have more of an equal role in your household’s finances,” she says. You and your spouse should also have a frank discussion about how you are going to divvy up household responsibilities if you stay home.

5. What will your social outlets be?

It can be mentally and socially isolating to work from home or stay at home with the kids, and that can lead to feelings of sadness, anger, and depression, says Christiane Manzella, Ph.D., a psychologist at the Seleni Institute in New York City. If you stay home, think about where you are going to find mental and social stimulation beyond your partner, Manzella says. “Make sure you have friends and hobbies and that you build in time for rest and relaxation.”

6. How will your change affect your long-term career prospects?

You may want to go back to work one day, but that can be tough if you’ve been totally out of the workforce for years. If you decide to become a stay-at-home mom or dad, find ways to remain connected to your professional network and periodically go to work-related events. Also, think about whether there is something you can do to stay active in your field and keep your skills fresh, whether it’s working part time or volunteering in your field of expertise.

Michelle Crouch writes about consumer finance, parenting, and more from her home in Charlotte, North Carolina. Her work has appeared in Reader's Digest, Parents magazine, and The New York Times.

Image by iStock

Additional Resources

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