In roughly 30 percent of all married couples in the U.S. with children under 18, one parent stays home.
And while we place a lot of emphasis on the benefits, financial plans and insurance considerations that people in the workforce should have, there’s more of a gray area for the stay-at-home spouse.
In most cases, the spouse that stays home is under the umbrella of their spouse’s benefits. But there are some specific insurance and considerations that are important for the spouse who isn’t in the workforce.
Stay-at-Home Spouse Life Insurance
Many people assume that a spouse who stays home doesn’t need life insurance, but that’s not the case.
Life insurance is typically thought of as income replacement in case something happens to the breadwinning spouse. But if one spouse is staying home to care for children, there are more factors at play.
If something happened to the parent who stays home, the family would need to pay for – at the minimum – child care services. And that can be very pricey, depending on where you live. According to Child Care Aware, the average cost for infant daycare for one child is $11,314 annually.
But there might be more expenses to cover as well, like cooking, cleaning and transportation, depending on your family’s needs. So if something happened to the parent who stays home, the whole family would take a financial hit.
A term life insurance policy is typically an ideal option for a stay-at-home spouse (and most people.) This is for two reasons: First, term life is more affordable than whole life insurance. It is also set for a certain amount of time. So if your spouse wants to stay home with the kids for 10 years before returning to the workforce, you can choose a policy that covers that amount of time.
Save for Retirement
It’s probably assumed that the working spouse is saving for retirement for both spouses. But throw in medical bills, housing costs and the constant expenses that come along with having children, and it’s easy for savings to fall short.
Consider a spousal IRA, a separate retirement account that allows you to contribute up to $6,000 annually for a spouse’s retirement savings. As long as the couple files a joint tax return and one spouse has earned income, a spousal IRA can be opened.
Just keep in mind that if either spouse was covered by a retirement plan at work during the year, the deduction could be reduced or eliminated depending on filing status and income.
Continue to Build Credit for the Stay-at-Home Spouse
A spouse that stays home shouldn’t forego their credit along the way. They might be building credit from paying off student loans or a car, but if not, should retain a credit card in their name.
It’s important to keep some credit in the stay-at-home spouse’s name if they should need it down the road.
Stay Involved in the Family Finances
So many households have one spouse who manages the finances. Sometimes it’s the breadwinner, sometimes it’s not. Regardless, both spouses (and the kids, too!) should be involved in the overall family financial planning.
This is so important because if something happens to the spouse who handled the money, the other spouse is often left overwhelmed and unsure of how to manage the household savings, investments and bills.
No one wants to think about getting divorced or their spouse passing away, but these are realities that families face every day. Stay informed and prepared in case you need to take over the finances suddenly.
About Your Richest Life
At Your Richest Life, Katie Brewer, CFP®, believes you too should have access to financial resources and fee-only financial planning. For more information on the services offered, contact Katie today.