2 + 1 Adds Up to New Priorities
New babies have a way of reordering people's priorities.
When you're up to your elbows in diapers and Desitin, putting aside money for retirement may not be high on your list. But it should be, and more stay-at-home parents should contribute to retirement accounts, urges M. Cindy Hounsell, executive director of the Women's Institute for a Secure Retirement. "It's a way of valuing what you do."
Autumn Wilson, 26, didn't focus on retirement savings when she decided to leave her full-time job. After all, she expected to return to work at Nielsen TV Ratings after the birth of her son, Jai, 17 months ago. (Jai is a Hindu word for the sun, a type of flute and a flower.)
For one thing, she was the one with the "real job" with benefits. Jai's dad, Alex Paraskevas, 32, is a yoga instructor.
But as maternity leave was drawing to a close, Wilson decided she couldn't go back. Her job had been a compromise of sorts. Her background was in the theater, but the Nielsen job was more likely than working in theater to provide her with the stability she thought she would need to start a family.
Going back "seemed like the most sensible thing to do, mostly financially. But I just couldn't bring myself to do it," she said. "I started to realize that you have a philosophical and emotional responsibility to children in terms of only leaving them to do something you loved."
For a while, Wilson didn't work. Then she found her way into teaching kids' yoga. Pregnant with a second child, she teaches part-time in several studios around the District. She and her partner are both self-employed with no benefits, although Wilson does have health insurance that she pays for herself. And right now, she has no retirement savings.
Meg Keller also found herself surprised by her decision to stay home after her son Will was born nine months ago. She had worked in publishing, in marketing, and had assumed she would go back. But "you never know how you will feel until you're in the situation, I guess," said Keller, who plans to stay home until Will is 3 or 4 and in a pre-kindergarten class.
Because Keller and her husband, who is in government relations, decided that she would stay home, they made changes to help make it affordable. They sold a cooperative apartment they had acquired four years ago for $100,000 more than they paid and moved to the Kentlands suburb in Gaithersburg where they rent. Eventually they may move to Georgia or South Carolina, both of which are closer to family members and more affordable than the Washington area.
"Our retirement savings are decent but not where they should be," Keller said. "We're planning on putting some of the proceeds from the sale of our co-op into some retirement accounts and into a college fund."
But she's happy with her decision. In the early months, Will was colicky, "so in some ways he made this decision for us, because he was pretty demanding." But there's another reason too. "I'm 41, so we'll probably only do this once," said Keller. "I don't want to miss a moment of it."
Hounsell understands why Wilson and Keller chose to stay home rather than return to paying work. "There are many very compelling reasons to stay home to care for kids or other family members," she said. But Hounsell has seen many women facing hardships in retirement because they didn't take into account the long-term financial impact of those decisions.
Almost everyone takes into account the impact on current income, deciding how to rearrange expenditures to make it affordable. But Hounsell says there are other issues to consider when you're making the decision to stay home or not.
One is future salary. Women who leave the full-time workforce, even just for a few years, likely will never catch up, she said. "If you plan on getting a job at a higher salary after taking time off to make up for it, think again. This just isn't what happens for most women," she said. "For each year a woman is out of the workforce, she can expect to give up five to six percent in salary increases."
And another is retirement income. "You should have an IRA on the top of the list of what you should think about," she said. "If you are a full-time mom, you can -- and should -- contribute to an individual retirement account." The limit on contributions is $4,000, which generally is deductible for a couple whose joint income is less than $150,000.
One reason to contribute to retirement savings if you stay home is you'll probably have less Social Security income to count on when you retire. Social Security is based on your highest 35 years of earnings, and parents who stay home with children may not have 35 years of earnings. "For each year you don't work in that 35-year period, you get a zero averaged into your benefit amount," said Hounsell. "Women average 13 years of zeroes and can take a sizeable Social Security hit because of it."
Some couples, including Keller and her husband, opt to increase contributions to the retirement accounts of the spouse who continues to work outside the house. ("I call them women who don't earn, not women who don't work," Hounsell says of women who stay home to care for children.)
Increasing the spouse's retirement savings is good, but Hounsell thinks it's important to keep building a separate retirement account, even if only with small contributions. "I call it, not putting your eggs in somebody else's basket," she said. Although family bonds usually feel incredibly strong after you have a new baby at home, half of all marriages end in divorce.
Autumn Wilson had not vested in her 401(k) plan when she left her job. That means she forfeited the employer's matching money. She said they used the lump sum from her contributions to help cover costs, rather than reinvesting it. Her brother, who is Jai's godfather, started a 529 account for the baby's college education, and her mother has been buying savings bonds for him as a gift.
When she resumed working part-time, the couple put most of her earnings into a savings account, hoping someday to buy a house. When they get more than $10,000 saved, maybe they can think about retirement savings, she said.
That's a good idea.
Like children, retirement savings benefit from early attention.
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