How Does A Homemaker Plan For Retirement?

How does a homemaker plan for retirement?  When most of us think of retirement, we think of leaving our jobs after years of dedicated service.  It marks the end of a regular paycheck and begins the reliance on what ever savings we’ve been able to accumulate after years of consistently putting away for the future.  At least that’s how it is for those who have actually been in the workforce.  But what about those who are in a one-income arrangement, like a stay at home mom or a homemaker?  How DOES a homemaker plan for retirement? Her retirement needs would be the same as someone who worked outside of the home, but she doesn’t have the benefit of that second paycheck.  What then?

When you are married, a retirement plan needs to include both people, regardless of their working status.  I’ve been a stay at home mom/homemaker for years, but when we were financial planning, we looked at both of our situations, regardless of my income.

Fortunately, there are options for those that do not have jobs outside of the home.  Just because you’re at home raising the kids, doesn’t mean that your value is any less.  Unfortunately, life happens to all of us and it’s best to be somewhat prepared. Divorce or loss of a spouse can make a homemaker’s future very uncertain.  Being proactive is key and the earlier you start, the better.

*This post may contain affiliate links. For more information, see my disclosure page.

Options For Homemakers

There’s been a rise in the number of stay-at-home moms over the last 20 years.  The proportion of mothers who don’t work outside the home increased from 23 percent in 1999 to 29 percent in 2012, according to a Pew Research Center analysis of government data.

A 2015 Transamerica Center for Retirement Studies survey showed that 75 percent of stay-at-home parents or a homemaker in the U.S. plan to rely on their spouse’s income for retirement and only 44 percent of homemakers in the U.S. are actually saving for retirement.  That’s particularly unsettling statistics.  A change in circumstances, like divorce or death, makes them quite vulnerable.

As homemakers, we need to make sure we are fully aware of our family’s financial situation and what are prospects may be for retirement.

Luckily, saving or having a plan for retirement isn’t impossible for the stay at home homemaker.  Here are a few options:

Spousal IRA

You may be familiar with the term IRA (Individual Retirement Account), but are you familiar with a Spousal IRA?

A spousal IRA is a traditional IRA or Roth IRA in the name of a non-working spouse. In this scenario, the working spouse can contribute to the spousal IRA. That way, both members of the couple can be saving at once, even if only one is working outside the home. If the working spouse has maxed out his or her own retirement contributions for the year, contributing to a spousal IRA is a great way to boost the couple’s total retirement savings.

Depending on whether you choose a traditional IRA or a Roth IRA, there are different tax advantages.

Traditional IRAs are tax deductible in the year you make your contribution.  Withdrawals in retirement (after age 59 1/2) are taxed at ordinary income tax rates with no penalty.  Once you reach 70 1/2, you are required to take withdrawals each year.  If you miss a withdrawal, there is a 50% tax penalty for missing a distribution.

Roth IRAs provide you with no tax break for contributions but the earnings will be tax-free when you draw on it in retirement.  (Personally, I have opted for the Roth.  I plan on leaving it alone for many years and the benefit of all of the growth being tax free at the time of withdrawal is a huge savings.). Roths don’t have any withdrawal requirements nor penalties during the lifetime of the original account owner.

To qualify for a spousal IRA you need to file a joint tax return with your spouse.  For 2019, your spouse can contribute up to $6,000, or up to $7,000 if you’re age 50 or older.  However, these limits may change depending on your joint income.  Here is a table of income limits from the IRS website.)

Let’s Look At The Numbers

Through the magic of compound interest, just $100 invested monthly, for 20 years at a rate of 12%, will yield an extra $100,000 to your retirement savings.  Imagine if you can do better!  As stated above, if you and your spouse file a joint tax return, you can contribute $6,000 to your own Roth IRA—even if you don’t earn an income. That $6,000 a year, (approx. $500/mo.) earning 12%, will grow to almost $500,000 in 20 years. Keep it going for another seven years, and you’ll have over a $1 million—as a stay-at-home mom!  You can play around with the numbers by going here, to Daveramsey.com.  Even if you can only squeeze out half of that, it’s so much better than doing nothing.

How To Jumpstart The Savings

It may seem impossible to save anything, let alone, retirement if you’re a single income household, but there are a few ways to do this, rather painlessly.

1. Take it off the top.  This means pay yourself first.  Have it automatically deducted once or twice a month.  You rarely miss it if it comes out first.
2. Start a side hustle.  Just because you stay at home doesn’t mean you can’t do something at home to generate a little extra income.  This has been my life for most of my adult life.  I’ve done craft shows, sold Avon, cleaned houses, etc.  Most of my part time jobs revolved around my children and their schedules.  It’s do-able.
3. Get on a budget!  This is really the first place to find money.  Track your spending and cut out unnecessary expenses.  You’ll feel like you got a raise!
4. Retirement trumps education.  I know it’s important to save for your child’s education, but not at the expense of your retirement future.  Your kids can borrow for their education (even though I don’t recommend it), but you can’t borrow for your retirement.  If you’re currently funding education, put a temporary stop to it until you can get retirement funded.

Social (in)Security

I’m including social security in this post with much intrepidation.  Never, never, never think you can rely on social (in)security as an option to get you through the retirement years.  It’s scary to think that one might have to rely on the government to take care of you in your old age.

With that being said, homemakers will only receive their own Social Security retirement benefits if they’ve worked for pay for the equivalent of ten years.  Otherwise, if they’re married and their spouses are collecting Social Security, the homemakers can file for spousal benefits starting at age 62 (equal to half the spouse’s full retirement benefit).  If you apply at age 62, your benefit will be permanently reduced by 25 percent. That could make a big dent in your monthly income and would also reduce any future survivor benefits should your husband outlive you.  Obviously, the longer you can wait, the better.

Life Insurance

We all know the importance of having life insurance when you are young with a family depending on you. But how important is life insurance when you get older.  Well, that depends.

Statistically, women tend to outlive men and much depends on how well you have prepared for retirement.  It’s sad to think about, but very necessary, what would happen to you if you didn’t have your spouses income or neither have prepared or saved enough in retirement to self insure.

Where would you be if your spouse passed away?  Would you be able to survive on their social security benefits, every month?  Is your mortgage paid off yet?  Do you still have dependent children living at home?  All of these things need to be taken into consideration when planning for the future. Having adequate life insurance is not a luxury item.  It’s a necessary expense that needs to addressed sooner rather than later.

Dave Ramsey says that you need the equivalent of 10 times your annual income in life insurance to insure that your family is taken care of.  So, if your spouse makes $50,000 a year, he would need a $500,000 term policy.

It’s just as important for a homemaker to have life insurance, as well, but maybe not as much as the working spouse.  Just look at how much it would cost to pay others to perform functions currently handled by the household CEO.

When you’re deciding on what kind of life insurance to get, Term Insurance is super cheap, because all you’re paying for is insurance.  You do not want to use an insurance policy as a savings vehicle, i.e..Whole Life Insurance.  Generally, the only people that recommend Whole Life Insurance are the agents that sell it.

The nutshell:

As a homemaker, you NEED a plan for retirement and for your retirement savings plan to be successful, you need to be out of debt and have a solid emergency fund. That way, you will be able to continue to build wealth and secure your future.  Once you do both of these steps, you shouldn’t have any trouble finding the extra money to put into your plan for retirement savings.  Just make saving a priority sooner rather than later.  A little planning goes a long, long way!

Disclosure:  I am by no means a financial expert.  All I can tell you is what we have done and what has worked for us.  If you want expert advice, please contact a financial consultant.  If you need help finding one, I recommend going to Dave Ramsey’s website and look under “Dave Recommends” for a Smartvestor in your area.

Be sure to subscribe to Love To Frugal so you never miss a post!