A new report, Homemakers Are Not Off the Hook: How Should They Be Planning for Retirement?, underscores that women and men who stay home to care for children need to focus on retirement planning. Two-thirds (67%) of homemakers globally got a low score in the Aegon Retirement Readiness Index, compared to 52% of workers who got a low score. The report also found that homemakers are less optimistic about retirement. In my view, that’s directly attributable to the fact that they are less likely to be actively saving for retirement.
As Catherine Collinson, president of the Transamerica Center for Retirement Studies, which produced the report in collaboration with the Aegon Center for Longevity and Retirement, commented, “It’s understandable if someone isn’t working, they don’t have the income to save, but they can be part of the savings process and the retirement planning process.”
According to a Pew study, mothers are almost three times more likely than fathers to leave the workforce to care for a child or family member. The reality that when a woman leaves the workplace to take on a caregiving role, she reduces her future earning potential is especially problematic to retirement planning because women live longer than men. According to the U.S. Census Bureau, the current life expectancy for a woman is 80.5 years, compared to 75.5 years for a man. That means five more years in retirement with higher health care expenses.
So how do we engage parents who do valuable caregiving work without compensation?
- Create a budget and a financial plan with your spouse. By getting personally involved in family finances, you’ll feel more control of building your savings.
- Open a spousal IRA. If you file a joint tax return with your working spouse, even if you don’t work, you can contribute to a spousal Individual Retirement Account. For 2015, you can put away up to $5,500 or $6,500 if you’re 50 or older.
- Roll over old 401(k)s into self-directed IRAs. That provides more investment choices, facilitates account management, and can cost less in administrative fees.
- Consider part-time work. Even if you don’t work full-time, you might be eligible for a workplace retirement plan, possibly with an employer contribution. If you have any kind of freelance or consulting income, you can open an individual 401(k) or a Simplified Employee Pension (SEP) IRA.
Above all, parents who choose a caregiving role have to prioritize their financial life. The first step is putting your needs in the mix with those of the kids, your partner and parents. By adopting a more holistic and engaged approach to family finances, retirement planning won’t feel so isolated from your other goals.