Retirement for Stay-at-Home Parents

Many families make a sacrifice by having one parent stay at home to raise their children.  If the stay-at-home parent remains at home and unemployed for the majority of his or her working years, what happens when the stay-at-home parent reaches retirement age?

Without employment, a stay-at-home parent isn't going to have an employer-sponsored retirement plan to help him or her out during the golden years.  To qualify to open an IRA, the IRS requires you earn an income, so that's out, too!  Even if you're not generating an income, you need to establish retirement savings, but with the limitations on IRAs, what are your options?

If you're married, you can open a spousal Individual Retirement Account (IRA).  The spousal IRA is designed for nonworking spouses to save for retirement with funds from their spouses' income.  The 2008 maximum contribution is $5,000 a year in a spousal IRA (or $6,000 per year if you're 50 or older).  You can open a spousal IRA as a Roth or Traditional IRA.  With a spousal Roth IRA, you could invest $4,000 a year for 20 years and with an average return of 8% per year – end up with almost $200,000 that you won't owe taxes on.  Uncle Sam already got his share from the money you invested – which is the primary advantage of Roth IRAs over most other types of retirement accounts which do not tax the original investment but tax your withdrawals.  The other benefit of a spousal Roth IRA is that you could withdraw your investment any time, without penalty.  The earnings of your contributions must remain in the account for a minimum of five years and until you're at least 59 or else you'll pay big in taxes and penalties, but the amount you contribute can be withdrawn and it won't cost you anything.  Ideally, you would leave your money in the IRA for as long as possible, but it's always nice to know you have access to your money in case of an emergency.

If you're not married, or otherwise don't meet the requirements for a spousal IRA, you could always look at other interest-earning deposit accounts for establishing a retirement fund.  There are many high interest savings accounts, checking accounts, fixed rate IRAs, certificates of deposit and money market accounts which can be opened for as little as $1 – and are virtually risk free, meaning you aren't gambling with the money you set aside.  The earlier you start and the more consistent you are with saving money, the better off you'll be when you reach your retirement years. 

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Guest's picture

Stay-at-home spouses (I'm sure the children have left the nest by retirement age) don't really reach "retirement age" - what are they retiring from? Wouldn't they just continue living off of the working spouses income through their retirement? It doesn't make sense to open a joint IRA if you're using the working spouses income during retirement, it's all going to the same place.

Hopefully the working spouse has planned for income for 2 people during retirement.

This is just a strange article.

Guest's picture

I think the idea is that you want some protection in the case of divorce. Ideally this wouldn't ever happen, but in case it does, the stay-at-home parent will need some security.

Guest's picture

In addition to the point that Amy makes, opening a spousal IRA will allow you, as a couple, to save twice as much in your IRAs. That will allow the working spouse to plan for income for 2 people during retirement.

I don't think this is a strange article. I think it is an important article.

Debbie Dragon's picture

Children leave the nest before you retire (hopefully, although we've all heard horror stories of the kids that keep going home!) but if you are a lifetime stay-at-home spouse (homemaker, as they were once called!) even after the kids leave the nest - shouldn't you have a retirement, too?  Your spouse isn't going to work forever and it becomes harder to support 2 people when you're looking at most people's retirement funds.  I suppose it's just another way to plan for retirement for 2 people and have the ability to increase your contributions each year.

Would also be nice to have your own retirement in the event your spouse dies before you (and perhaps there isn't enough money in life insurance and such...)

Divorce, as mentioned.  No one wants to plan for divorce, but the reality is you could spend 18 years at a stay at home parent only to find your marriage doesn't last for all time and then what? You've lost 18 years that you could have been saving toward your retirement because you were depending on someone else to provide for you...

Plus - you can only save so much in an IRA each year.  Definitely better to have two and increase the amount you're able to save - particularly with the tax benefits.

Guest's picture

I was married stay-at-hom Mom/Homemaker. After 23 years, we divorced and I had to start from scratch. Divorce settlement netted me approx. $30K total. I had only a GED education as I married at age of 16. ALL THE YEARS IN THE MARRIAGE PARTNERSHIP WENT TOWARD HIS SOCIAL SECURITY AND I HAD TO START BUILDING MY OWN RETIREMENT. I FEEL THIS IS THE SOCIAL SECURITY PENALITY FOR THE STAY AT HOME PARENT. (Normally the woman and the smaller earner of the two)
I invested the $30K and worked, joined company 401K plan and contributed full amount I could to get 75% company match. I adopted my Grandson and raised him with no financial help. We lived frugally but well. I drove older used cars most of the time.
After 16 years, my company offered early retirement with the veiled hint that there would be massive lay off after the volunteer retirement. I took the retirement at age of 52. I continued work with same company as a contract worker for an additional five years. I spent several years working small contract jobs until I was offered permanet position with another large company at a good salary. I worked three additional years and saved mininum of 20K per year.
I pay cash for my home, car and pay no interest. I started receiving my Social Security at age of 65 to get larger amount. Upon attaining age of 65, I retired with Total Net worth of $650K.
If I can live frugal and save to take care of myself, then others can do the same. It doesn't take a rocket scientist or financial geru. Common sense goes a long way in getting ahead and being self supporting.

Debbie Dragon's picture

What an inspirational story!  No one thinks about divorce when they're getting married, or that their spouse may not live as long as expected.  I would consider setting up a spousal retirement plan early in the marriage to be similar to having a prenuptial agreement.  You might have a prenup and never expect to have to use it - but you're always happy to have it if circumstances change!

Guest's picture

You wrote:
Would also be nice to have your own retirement in the event your spouse dies before you (and perhaps there isn't enough money in life insurance and such...)

No, the widow inherits (rolls over) her spouse's IRA etc.

(And no way is life insurance enough to retire on...)

Would be nice to mention Social Security for homemakers and self-employed folks...

Guest's picture

This is exactly what I needed to read today, thanks.

Guest's picture

Roth IRA is the way to go if you're a work at home parent. Also, don't forget that the retirement plan, 401k, or savings of your spouse should be a family retirement fund. Try and having the working spouse contribute as much as possible so that they maximize any employer contributions. It's free money :)

Guest's picture

this such a good one to read today!! as a stay home mom of 4 i dont believe i've ever thought of this!!!! now this has me thinking about of all of it .. so thanks for that, i will be taking all tips given here and do my homewrk.