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Can You Afford to Be a Stay-at-Home Parent?

Here are a few issues to consider—plus some strategies that could help you manage your finances during your career break

THE FIRST TIME SHERYL SANDBERG'S INFANT SON reached for his caregiver instead of her, "it hurt like hell," recalls the Facebook COO in her 2013 book Lean In. Most working parents can relate to that moment. There's no escaping the push-pull between parenthood and career when you drop your children off at day care or leave them home with a babysitter and head off to work for the day.

On the one hand, there's the desire to be there when they take their first steps or speak their first words; on the other, there's the satisfaction and income you derive from your career. Mothers and, to an increasing degree, fathers must consider whether or not to stay at home with their children—a choice that can be difficult and very personal.

The good news is that more and more employers are creating programs to smooth the return to work for stay-at-home parents.

Beyond the immediate concern of living on just one income are broader concerns, such as: How would a career break affect our family's long-term financial security? What about our ability to save for our children's education—or our own retirement? Will I lose career momentum if I take a few years off?

"The reality is, there are trade-offs and stresses either way," says Stephanie Coontz, director of research and public education at the Council on Contemporary Families. Here are some insights that may help.

Will taking time off to stay home hurt my earning power later?

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That's a legitimate concern. A study conducted by the Center for Talent Innovation in 2010 found that 73% of women seeking to resume their careers after spending several years at home had trouble finding a comparable job. According to the study, those who were hired lost 16% of their earning power.

Both men and women should consider what the job market will look like when they are ready to return to work. The good news is that more and more employers are creating programs to smooth the return to work for stay-at-home parents. It also helps to continue networking. "Telecommuting at least some of the time will give you a foot in the door when you're ready to return," says Michael Liersch, head of Behavioral Finance at Merrill Lynch Wealth Management.

Are there any financial advantages to having one parent at home?

You'll save on commuting costs, and your clothing budget will probably go down. But there's one huge advantage: You won't be on the hook for child-care expenses. In 2014, according to the advocacy group Child Care Aware of America, the average annual cost of having an infant in daycare exceeded annual tuition and fees at a four-year public college in 28 states and the District of Columbia.

Could my career break affect our retirement savings plans?

If you're not able to contribute to a 401(k) or an IRA, "your spouse should try to maximize his or her contributions if possible, to save for both of you," says Bill Hunter, director of Personal Retirement Strategies and Solutions at Bank of America Merrill Lynch. Once you each turn 50, you can take advantage of a catch-up provision that allows you to contribute greater amounts to your 401(k)s or IRAs.

Your spouse can also contribute to a spousal IRA for you. And if you do some work while at home, you may be entitled to contribute to a SEP IRA for small business owners.

What about Social Security? Will my benefits be reduced if I don't work for a few years?

"A break of a few years will have a limited impact on your Social Security benefits," says David Laster, head of retirement strategies at Bank of America Merrill Lynch. "Benefits are calculated based on your 35 highest earning years, so leaving the workforce for five years or so should not matter much." Bear in mind, though, that if you lose earning power on your return to work and don't catch up over time, you could begin to feel some impact.

With only one income, can we still save for our kids' college education?

In most cases, you can catch up on college savings when you go back to work. "That should be a second priority after saving for retirement," Hunter says. After all, your child can always get help paying for college, but you're on your own when it comes to retirement, he notes.

In the end, your heart is going to have a big say in this, but understanding how the choice can affect you financially will help you make a more clear-eyed decision. "People who acknowledge and embrace the trade-offs—on either side—tend to be the most content with whatever they decide," Hunter says.

3 Questions to Ask Your Advisor

  1. How can we keep our savings on track if one of us stops working temporarily?
  2. Can my current budget cover child-care expenses if I decide to return to work?
  3. Would a spousal IRA make sense for us?

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Bank of America Merrill Lynch is a marketing name for the Retirement Services business of Bank of America Corporation. 

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