Retirement Savings for Stay-at-Home-Moms

As so many of you are Stay-at-Home-Moms (SAHM), I want to tackle a few financial issues that are specific to you. First up is Retirement Savings. I interviewed Jeff Rose, an Illinois Certified Financial Planner(TM) and co-founder of Alliance Investment Planning Group. He is also the author of Good Financial Cents, a financial planning and investment blog. You can also learn more about Jeff at his website Jeff Rose Financial.

Thanks for agreeing to answer some questions for my blog, Moneywise Moms. My audience (from my recent reader survey) is over 50% stay-at-home-moms (SAHM), and I would like to find out more about how they can approach retirement savings. These questions come from conversations I’ve had with moms’ clubs and groups:

What are the options for a SAHM to save for retirement?

For a SAHM, she is allowed to contribute to a spousal IRA so long as her spouse has earned income (which we will assume is the case). She will be allowed to contribute just as much as any one else contributing to an IRA and still subject to the current year contribution limits which are $5,000 for anyone under 50 with an additional $1,000 catch up contribution. She is allowed to contribute to either a Traditional IRA or Roth IRA.

What is a ballpark amount that a SAHM should be saving for retirement? For example, when purchasing life insurance, the SAHM’s benefit is often much less than the working husband’s, but does that apply to retirement as well?

How much she contributes should be based on an investment strategy that is conjunction with her spouse. Both husband and SAHM need to sit down, crunch some numbers and try to determine desired income goals at retirement. Once they figure there goals, they’ll be able to work backwards and see how much she should actually be saving.

On a side note, for life insurance on a stay at home mom, I would suggest not to short change how much she provides to the relationship. If the SAHM were not there to provide all the normal daily duties, the surviving spouse would be subject to an increase set of expenses.

What is the rationale for putting one’s own retirement savings ahead of education/college savings for kids?

I always advocate that you have to take care of #1 first. I’ve seen parents who sacrifice their own retirement by investing in college savings plans for the sake of the kids not to incur student loan debt. My argument to that is, “If you don’t save for yourself, who will?” Once option that I suggest is funding the Roth IRA. Why? Unlike other retirement plans, you always have access to what you put into it (your contributions) and if you have to pull money out for your kids college education, you’ll only have to pay the tax and not be subject to the 10% early withdrawal penalty. If for whatever reason your kids don’t use it for college, you’ve taken care of #1 and increased your chance of a successful retirement.

For more family finance, head over to Jeff’s blog, Good Financial Cents.