There are over 5 million stay-at-home parents in the United States. We give these individuals snaps for forgoing earnings (at least for a time) to make sacrifices that are important to them! However, these people are not exempt from aging, and therefore need to be concerned about a retirement nest egg.
Are you a stay at home parent? Have you thought about saving the money you will need for your retirement? Be careful not to assume your partner has it all taken care of–he/she may not! Here are some practical ways to save, suited specifically for your unique situation.
Consider a Spousal IRA
Newly deemed the Kay Bailey Hutchinson IRA, the spousal IRA honors in name the former U.S. Senator from Texas who made it possible for spouses not participating in the workplace to contribute to an IRA, something previously not allowed. In 2013, non working spouses may make contributions of up to $5,500 a year ($6,500 if over 50 years) in their own spousal IRA. The only requirement is that you file a joint tax return with your spouse.
Don’t forget about any old 401(k)s!
If you used to work and had an employer sponsored 401(k) plan, be sure to roll the money into an IRA so that you maintain control over it. Forgetting about it could result in you being cashing out (which will incur taxes and penalties) or limit your control if it is automatically rolled into a less-than-desirable IRA of their choosing.
Maximize your working spouse’s contributions to his/her employer sponsored retirement plans
Don’t assume it is being done! Sit down together and decide how much you can stash away. Working individuals can contribute from their wages up to $17,500 in 2013 ($23,000 if over 50 years) to an employer sponsored 401(k) retirement account. A huge benefit to contributing to an employer sponsored plans is they often provide a matching contribution to yours = free money! (Also as a note to self-employed individuals, the legal limit of total contributions to a 401(k) from all sources is $52,000 in 2013, so consider that your business can match your $17,500 with an extra $34,500!)
Have a small business on the side?
Many stay at home parents have small business ventures. If so, you are eligible to set up a self-employed 401(k) or SEP IRA. (see above note to self-employed individuals!)
Make saving a priority
As a stay at home parent, you are likely the most in tune with family finances. Therefore you hold a lot of power in making saving a priority. Establishing the pattern of putting a little away each month will pay off big in the end. It is these small savings along the way that is more likely to carry you through retirement (along with the power of compound interest) than any windfall investment.
A word on Social Security benefits
If you never work outside the home, you are still eligible for social security benefits based on your working spouse’s benefits; usually half of your spouse’s benefits, to be exact. The situation can change if you become divorced and do not enter the work force yourself, but usually there is still some benefit based on your ex-spouse’s benefit, although it will be reduced. But as always, do not bank on social security as your sole retirement.