Does it make sense financially for both me and my spouse to work after our child is born?
When considering if it makes sense for you or your spouse to stay home, in the short term financially it looks like a no-brainer. Although you would have to do without a second income, factoring in what you would be saving on childcare, you may discover that one of you can stay home without seriously affecting your net income. Additional considerations are:
- Child-care costs: The cost per child for a day-care facility, nursery school, or nanny
- Commuting costs: Gasoline, wear and tear on your car, tolls, and parking
- Clothing: Work clothes and dry cleaning
- Restaurant and take-out food: Prepared dinners you purchase because you have no time to cook
- Lunches out: You have more time to prepare your own
- House cleaning and gardening: Hired help to clean the house and mow the lawn
- Taxes: With only one salary, you may move into a lower tax bracket
Although the picture in the short-term may look promising for one spouse to stay at home, you need to consider the long-term, too.
Think about your employer-sponsored retirement plan. If you or your spouse remain in the workforce, employer sponsored retirement plans not only give you an immediate tax break, but also grow to make a larger retirement nest egg. Your employer-sponsored retirement plan is funded when you are working because you are contributing (and your employer may also make contributions). If both of you do continue to work outside the home and still need to free up some cash, dial back equally on your retirement savings. Too often one parent stops contributing altogether while the other parent’s account grows and grows.
Consider when, if at all, you or your spouse are planning to reenter the workforce. At that point, your earning power is likely to be diminished. Some individuals find that they are not getting paid their former salary because their skills are out of date. Also, you may have to climb the career ladder all over.
Keep in mind that with only one wage earner, you are more vulnerable to economic downturns and company downsizing. If the working spouse loses a job, it will have a much greater effect on the family’s finances.
As your children grow, your child-care expenses, one of the biggest expenses in a young family’s budget, will decrease considerably. As a result, you will save less from having one of you stay home. When looking at the bigger picture it is not necessarily a no-brainer for you or your spouse to stay home. There is a lot to consider.
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable. We cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.