In earlier posts we’ve discussed the importance of a spousal IRA for a spouse that stays at home taking care of the children in order to still save for retirement even though the “non-working” spouse has technically no “earned” income.
Spousal IRAs aside, I wanted to shed some light on the value of a stay-at-home parent has, even though they might not be getting paid a salary for their work raising the children. The goal is to point out why stay-at-home parents still have a need for risk management and retirement planning as they (in my opinion) work one of the hardest jobs – raising children.
According to the 2016 salary.com Mother’s Day Infographic, the value of a stay-at-home mom (parent) is approximately $143,102 annually, accounting for 40 regular hour work and 52 hours of overtime. This “salary” takes into account occupations such as driver, teacher, chef, nurse, and janitor. The site also lets the user input their own information regarding specific circumstances (honey, if you’re reading this it said you were priceless!).
Here’s why this number is so important. There have been plenty of times that I have worked with a married couple and one of the spouses was a stay-at-home parent. Generally, that individual is the wife. What is interesting is that while she is general making close to, if not more than her husband, she is severely lacking in some of the basics of financial planning – insurance and retirement savings.
Unintentionally, I’ve seen the husband with quite a bit of life insurance and various retirement accounts such as a 401k and IRA, while the wife has very little, if any life insurance and has little to nothing saved for retirement.
The question that needs to be considered is how would the family function if the stay-at-home spouse died? How would the working spouse continue working, while also caring for the children if the stay-at-home spouse could not? Even though one spouse is working, are not both spouses going to enjoy retirement? And (sorry, men) since husbands generally die before their wives, will what he’s saved be enough to support her in retirement after his death?
Ok, ok. So maybe your head is spinning. My apologies.
Although this is a lot to think about, surprisingly the remedy isn’t that difficult. After determining the amount of (monetary) value that the stay-at-home spouse provides, consider having that spouse apply for an amount of life insurance related to that amount. A ballpark place to start is ten times that annually amount. From there, determine specific needs or see a competent professional to quantify it using a human life value approach. The working spouse should consider getting spousal life insurance through their group policy at work. Although not very high amounts it’s generally easy to get and the premiums are inexpensive.
For retirement savings, take advantage of the spousal IRA option. This allows a stay-at-home spouse to contribute to an IRA as long as the working spouse has enough earned income to make the contribution. For 2016, this means that for a couple under the age of 50, the working spouse would need to have earned income of at least $11,000 for both spouses to make the maximum contribution of $5,500 each.
Although the earned income is non-existent, it’s still important to make sure plans are in place for the stay-at-home spouse. As you can see the results of not planning could leave a significant gap in a family’s plan.