In the United States today, about 20 percent of households include one stay-at-home spouse. There are certainly many benefits to a one-income household on the childcare and housekeeping fronts, but there are important financial considerations for stay-at-home spouses that don’t often get the attention they deserve.
Here are four things to keep in mind if you have a stay-at-home spouse in your household, or you’d like to in the future.
The most pressing insurance need for most couples is health insurance, and a stay-at-home spouse is usually easily covered under the working spouse’s policy. On the life insurance front, however, many people assume a non-working spouse doesn’t need a policy. However, that is not the case.
Yes, life insurance is often viewed as income replacement in the event something happens to the family breadwinner, and this is an important benefit of having a policy if you’re working. There are good reasons to have a life insurance policy covering a non-working parent, though, too. Most importantly, if something happens to the parent who provides most of the day-to-day childcare, arrangements will need to be made to pay for childcare going forward. This is typically quite a hefty addition to the family budget – the average cost for infant daycare in the U.S. is $991 per month, while the average cost for an older child is $847 per month. The numbers add up to more than $10,000 annually per child, meaning the addition of childcare can be quite a financial hit for a family.
To prepare your family to overcome such a scenario, it’s smart to have a term life insurance policy covering the stay-at-home spouse. Term policies are very affordable – sometimes just the cost of a few fancy coffees per month – and they are also set for a certain period of time. So, if one parent plans to stay home for ten years while the children are young, it’s possible to choose a life insurance policy that covers that specific period of time.
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Most often, the working spouse has a retirement account and it is assumed that this nest egg will provide for both spouses in retirement. However, life has a way of throwing curveballs, and with things like medical bills, housing costs, inflation, and unexpected expenses, it’s all too easy to fall short of your savings goal.
To guard against running out of money for your joint retirement, consider a spousal IRA. This is a separate retirement account that allows the working spouse to contribute money annually that is specifically directed toward their non-working spouse’s retirement savings. This won’t apply to every couple’s situation, but it’s an option if you meet two criteria: 1) you file a joint tax return, and 2) one spouse has earned income.
(Note: Your deduction amount could be reduced or eliminated depending on your filing status or income.)
Just because one spouse is staying home doesn’t mean they should neglect to build solid credit. Sometimes, there may be student loans or auto loans in the stay-at-home spouse’s name, which accomplishes this goal. If not, it’s wise for the stay-at-home spouse to maintain a credit card under their own name. You never know when both of you may need good credit in the future, either for a joint purchase or individual financial ventures.
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In households with just one working spouse, the default arrangement is oftentimes that the working spouse manages all the finances. The ideal set-up, of course, if for both spouses to manage the family finances together, regardless of which one is the breadwinner.
Consider what could happen if the breadwinning spouse should pass away or become incapacitated – would the stay-at-home spouse know how to pay the bills or where to find financial account information? This can be an overwhelming scenario, so avoid it by ensuring both spouses are aware of how to manage household savings, investment accounts, and monthly expenses.
Every family is different, and having one spouse stay home to care for the kids and home isn’t the ideal scenario for everyone. If it’s something you can swing financially and you both feel confident about the decision, however, it can make for a useful divide-and-conquer approach to family life. Just be sure to consider the important financial aspects mentioned above so that your family can be prepared and protected during any scenario that may arise.
Paces Ferry Wealth Advisors, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission (“SEC”). This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor.
