Being a stay-at-home parent is an extraordinary calling. Stay-at-home parents are everyday heroes who don’t wear capes. The calling to be a stay-at-home spouse can be truly fulfilling. However, there are serious financial risks that stay-at-home parents must overcome. They miss out on workplace-provided benefits, such as employer-matched retirement plans, and have limited earning histories. Don’t sacrifice your financial future with a limited credit history or lack the proper protection for the unexpected. Instead, use this time to be proactive and beat the unique financial risks that stay-at-home parents face.
Long-term risk
Planning for the long term is difficult because it is simply too easy to procrastinate. Just because you don’t collect a weekly paycheck doesn’t mean you are excluded from saving for retirement. Yes, the IRS states that your IRA contribution may not exceed your earned income for the year. However, there is a workaround for married couples with only one breadwinner. By filing your tax return jointly, you are permitted to each contribute to your IRAs. Specifically, this workaround allows the contributions if the total does not exceed your joint taxable income. These workaround contributions are still subject to the annual limits for 2026, which is $7,500 ($8,600 if you’re age 50+).
Beating the retirement saving conundrum
Great, Stay-at-home parents do have the accessibility to save for retirement. The next question is, how much should you be saving? Good question, and the answer is, as much as possible! Even contributing the maximum amount annually might not be enough to fund retirement. Ouch. Determining how much to save is a logical next step, which we address in the ‘You’re Probably Not Saving Enough for Retirement’ blog post. Spoiler alert, you will likely need to save outside of your IRA, in a taxable account, as a Stay-at-home parent to accumulate enough for retirement.
One question you might be asking is, why doesn’t my employed spouse simply increase their 401(k) contribution? Unfortunately, the divorce rate in America is approximately 40-50%. No one gets married with the intention of getting divorced. Saving for retirement in your name is a good idea, even if you have the strongest relationship. If your employed spouse is able to max their 401(k) contribution while you are saving in your name as well, all the better.
Where should all this saving go? Let’s start with the IRA contributions. If, as a couple, you are not in your highest tax bracket years (and are making less than $242,000 annually), then a Roth IRA would be an excellent destination for your savings. In other words, think of a Roth first if you are not yet in your prime earning years. If you are making more than the $252,000 limit, your answer is to contribute to a Traditional IRA. Roth conversions are potentially an option down the road.
Now for the savings that you’d like to do on top of the IRA contributions. If the income-earning spouse owns a business, your options become a bit more complicated. You may read our ‘Small Business Retirement Plans – What You’re Missing’ blog to check out some of your unique options. Putting small business retirement plans aside, for the time being, the next place to save would be a taxable investment account. Here, the sky’s the limit on how much you can save. The reason this location is mentioned lastly is that the tax benefits of saving here are much less than in retirement accounts.
Social Security challenges
As a SAHD or SAHM, you may have a limited employment history. If you have earned enough credits to qualify for Social Security retirement benefits, fantastic! When it comes time to decide on your benefit, will you take your benefit or your spouse’s?
If you didn’t know you have a choice, you do! The decision begins with who has a more substantial Social Security benefit. Technically, you may collect up to 50% of your spouse’s benefit that they would receive at their full retirement age. You may not cash in on the delaying benefit. Remember, when you delay your Social Security benefit, your benefit increases by 8% each year. This increase does not apply to spousal benefits. When your retirement benefits are similar, you will receive a more significant benefit by receiving your own, as long as it is greater than 50% of your spouse’s benefit. Plus, by taking your benefit, you can take advantage of the delaying benefit.
What if the unexpected happens?
Planning for the unexpected is a real challenge for Stay-at-home parents. The most obvious reason is that they do not have access to the standard workplace benefits packages. This means they may not have access to benefits such as short-term disability, long-term disability coverage, and even employer-provided life insurance. The first place to look is your employed spouse’s employer. What benefits are offered that extend to spouses?
Always compare before jumping in with two feet. Independent insurance firms can offer very competitive pricing on policies that will help mitigate financial risk to your family. The risks that stay-at-home parents need to plan for are based on the stage of life the family is currently facing. A stay-at-home parent (SAHP) with two children under five, a mortgage, and an employed spouse will need very different insurance coverage than an SAHP with children on the cusp of college, no mortgage, and a working spouse less than ten years away from retirement.
The stay-at-home parent with two children under five, a mortgage, and an employed spouse is facing unique risks that insurance, in theory, could help mitigate. What if the Stay-at-home parent were in an accident and became disabled in such a way that they couldn’t care for the children or maintain the home in the same way? Disability insurance is the traditional solution here, but unfortunately, most insurers require two years of income to qualify for coverage. Thus, in this case, to mitigate the risk that stay-at-home parents become disabled, the family should consider increasing the emergency fund balance to act as a buffer for the unexpected.
Life insurance is a must in this scenario. The family should have a policy on the stay-at-home parents and also cover the employed spouse. The insured amount on the SAHP is a serious consideration because you must weigh the economic impact on the family should they pass. What would the cost of full-time child care be? What would be the cost to maintain the house and complete all the tasks that fall in the SAHP’s wheelhouse?
Weighing the options
The amount of term life insurance necessary for the SAHP will be determined by weighing the economic impact of unexpected death against the family’s current debt burden. Permanent life insurance is often unnecessary for stay-at-home parents because it is less cost-effective than term insurance. With permanent life insurance, you pay higher annual premiums for features such as the ability to build cash value. The extra cost does not necessarily provide a corollary benefit. SAHPs should purchase an appropriate amount of term life insurance for an affordable annual premium.
Another of the many risks stay-at-home parents face is a limited history. Given that the stay-at-home parent has no earned income, they may have a limited credit history. While it is not the end-all, be-all number some would have you believe, it is essential to build and maintain a credit history as another buffer against the unexpected. If the employed spouse were to pass away and the SAHP decided to relocate, obtaining a mortgage would be challenging due to limited credit history.
Maintain, but don’t overextend
The easiest way to maintain your credit history is to use a credit card responsibly, meaning managing at least one line of credit. Payment history is the most impactful piece of your credit score; it weighs most heavily. Paying on time, all the time, is vital. Keeping your credit spending to a minimum also helps boost your credit score. Overall, across all credit sources (home equity lines, credit cards, etc.), you should aim to keep a low ratio of credit utilization to your available credit. You should also look at each credit source. If you are maxing out one card but your overall credit utilization is low, you could still be negatively affecting your credit score.
Preparation for the future
There are specific steps and strategies that stay-at-home parents can take to mitigate the unique financial risks they face. The first step is to identify and acknowledge those risks. Preparing for the unexpected is especially crucial for families with a stay-at-home parent. Just because you don’t have workplace-provided benefits like a 401(k) does not exclude you from being prepared for the future. As a stay-at-home parent, if you would like help taking the steps and putting strategies in place to protect your family, we would be happy to have a conversation.
