How Do I Plan for Retirement As a Stay at Home Parent?
I have been a stay at home mom for over 10 years now. Ten. years. It’s crazy. When I started being a stay at home mom people gave me all kinds of advice. One of the biggest things I heard was that “money would be tight, but it would be worth it…” Fair enough. Money was going to be tight, so you know what I did? I assumed that living paycheck to paycheck was a normal thing. Because we only had one income, money was meant to be tight, right? Instead, what I should have done was buckle down, create a stable budget that allowed us financial freedom and encouraged us to save for the future. The hard truth is, you need to plan for retirement as a stay at home parent. This post is designed to walk you through how to get started.
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Why stay at home parents need retirement savings too
Often times a plan for retirement as a stay at home parent isn’t given much thought. If the other spouse has a 401K or other retirement plan in place, that’s often thought of as good enough.
Why you need to save too:
- Security for the future
- More tax-free options in retirement
- Most couples aren’t saving nearly enough for retirement
It’s estimated that around 15% of Americans have nothing saved for retirement. What’s even scarier is that this statistic doesn’t change for those closer to retirement age.
For those that are saving, 10% believe they will have enough to cover them in their retirement years. That’s pretty scary.
This is why it is so crucial to not let your stay at home parent years go without saving for your future. After all, the sooner you can start investing, the better. Find a financial advisor near you.
The retirement plan for you
Okay, so you know why you should be saving for retirement, but what is actually the best way for you to plan for retirement as a stay at home parent?
To be honest, there are a few options, but there is one that is proven to be the most cost effective and that’s the SpousalIRA.
The SpousalIRA
There is an IRA called a SpousalIRA that does not require you to have an income in order to contribute.
Contributing to this account will of course require your spouse putting money from their income into an account for you. This can be a struggle if you and your spouse are not on the same page when it comes to finances.
How to Discuss and Execute a Budget With Your Spouse
It’s so important to remember that a stay at home parent is still contributing to the household even if it’s different than bringing home a paycheck.
If this is something your spouse is worried about, take a moment to ensure them that this is actually beneficial to both of you.
The overall recommendation is to begin investing 15% of your income.
When investing that 15% between a 401K and the SpousalIRA you can actually help you get more of that money back tax-free!
How the SpousalIRA gets you more money back
When you open a SpousalIRA, opt for the Roth version of the IRA. Instead of paying taxes later (on the money you’ve earned interest on) you pay taxes upfront and then don’t have to worry about it again.
A Roth IRA means you get more money. Bottom line.
Here is a great graph that I borrowed from Dave Ramsey’s website that shows clearly how investing 15% of your income between your spouses 401K, a Roth IRA and a SpousalIRA can help you avoid paying extra in taxes when you hit retirement. (Right bar).
Where to open a SpousalIRA
You can always get help from a financial advisor in your area if you want to make sure you are making the right financial moves for your family. Although there is a cost upfront, it can help you big time when it comes to saving and investing for the future.
Otherwise, when it comes to opening an IRA, you should be able to open one at your local bank. However, you are more likely to get a better rate of return if you open with an online firm like Fidelity.
Working together
No matter what, it is crucial that you and your spouse work together to plan our your financial decisions. Often times one spouse takes over all of the finances leaving the other completely in the dark.
This is dangerous for many reasons, the top one being a potential death.
It’s crucial that you both know and understand where to find your financial information when needed and that you have a good understanding of what your money situation is.
To do this, I highly recommend investing in my Budget Hacking course. This course walks you through the tricks and tools our family used to pay off debt in 18 months and free up over $1,000 liquid cash!
Here are some great resources to get you started:
- The Best Proven Way to Manage Money as a Married Couple
- Financial Infidelity. How to Prevent it and Save Your Marriage
- We Moved Into a Smaller House to Pay Off Debt. Here’s How We Did It.
- Surviving SAHM Status Mentally and Financially.
Create a retirement budget
The first thought you might have when reading all of this is that you just can’t afford to save for retirement right now. After all, you are living on one paycheck and money is pretty tight.
Trust me, I’ve been there and I know the feeling. But, if I can be honest with you, at the time time I was feeling those feelings, I was wasting a ton of money too. Here are the top ways people tend to over-spend their paychecks:
- Having too much house
- Small purchases under $10
- Buying too many groceries (that go bad anyway)
- Debt
Grab my Fun Sized Budget Bundle.
So what are you options for avoiding these common mistakes?
Are you paying too much for your house?
I don’t know your exact financial state, but almost 40 million Americans are currently living in housing that they can’t afford. Read more.
This alarming number makes it safe to say that there’s a good chance you might be living above your means when it comes to your home costs.
No more than 30% of your income should be going toward your mortgage or rent.
Read all about how our family of 5 downsized.
If you are not able to completely move and downsize your home right now, another great option might be to consider refinancing your home to get a lower monthly payment that you can afford. See available refinancing options.
$10 or less purchases
One of my personal biggest struggles with small purchases is quick stops at places like Starbucks, Taco Bell or the Target Dollar Section. In fact, I dropped some serious truth bombs on Instagram regarding those tiny little purchases.
Did you know if you were able to start saving just $5 per day in just 10 years you could potentially have over $19,000 saved up? Yeah, it’s that big of a deal. Check the post to see a better breakdown.
Overspending on groceries
Living life without a grocery budget was probably one of the biggest mistakes I have ever made. I have an awesome budget bundle filled with helpful budgeting and grocery budgeting printouts for you to use.
Another great option is the $5 Meal Plan. There are meal plans for families on a budget laid out so it takes all the guesswork out of creating healthy, affordable meals for your family.
Paying off debt
Paying off debt was one of the most challenge and rewarding things we have ever done. See how we paid off $6,000 in 6 months.
If you are in debt right now, one of the biggest eye-openers is just writing down your debts and adding up how much you pay each month for all of them. Now, imagine having all of that money back in your pocket!! THAT is why debt payoff is worth it.
Tips for paying off debt:
- Getting help from a good financial advisor can help you gain control of your money and set you up with a realistic debt payoff plan. Find a financial advisor near you.
- Knowing how much debt is holding you back is crucial. You can get a FREE credit repair ebook and credit consultation to help you weigh your options and see if credit repair is right for you.
- Consolidate your debts. If you are paying high-interest rates on things like credit card debts, it might be worth it to look into getting a loan with a lower interest rate in order to save yourself major money in the long run.
- Get a 5-minute breakdown on how to pay off debt the Dave Rasmey way.
- Learn where your wasted spending is in your budget through Budget Hacking.
What else can you do to be financially smart as a stay at home parent?
There are other things that you can do to make smart financial decisions when it comes to being a stay at home parent. Planning for your retirement is a solid plan and will only benefit you. However, there are a few other things you have to look into and consider as well.
Build your own credit
Sometimes when there is a stay at home parent, only one partner has credit cards in their name. Now, I am not a big fan of credit cards, unless they are used correctly.
If you struggle with impulse shopping, then having a credit card might not be the right decision for you. But if you can be smart and pay off your full credit card balance each month and this would be a wise move.
Making sure you have your own credit will help you have a good credit score separate from your partner.
If you know your credit is currently struggling, grab this FREE credit repair eBook from Lexington Law.
Have a solid insurance plan and a will
As much as we don’t like to think about it, it’s always smart to prepare for an accident. If you or your partner were to die this could leave you and your children in a very financial vulnerable situation.
What kind of insurance do you need?
What type of will do you need?
There is so much confusion around how to create a will that works. You can often just fill one out online and get it notarized. Tom and I had the opportunity to do that and we shared about it on Instagram.
However, while this type of will may cover a few areas, it can still leave your finances and home vulnerable.
That’s why it is important to meet with a lawyer to get a legal will or living trust drafted up.
Will or Living Trust: Which is Right for You?
How am I supposed to do all of this?
I know this is a lot of information to take in, especially if you are feeling stuck financially already.
But trust me, as stressful and/or confusing as it might be, these are all top priorities for people with children.
Feel free to save this post as a guide, use the resources that are shared and start working to get all of these financial aspects in order. You will breathe so much easier once they are all in place. I promise.
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