NEW YORK Working parents of young children face a disappointing calculus. When they look at the paycheck of the lower-earning spouse - still usually the wife's - they don't see much bottom line income.
The taxes on that second income are paid at the couple's top marginal rate. A family in the middling 28 percent marginal tax bracket could see the second earner's salary cut by 43 percent or more, once state, Social Security and Medicare taxes are included. If she earns $50,000, they are left with $28,500 from which to pay for childcare (deduct an average of $11,666 a year, according to the National Association of Child Care Resource and Referral Agencies), commuting and all of the other costs of holding a job, from business attire to buying colleagues' kids' wrapping paper at fundraising time.
It's no wonder that a random bad day will trigger the quit response in struggling parents. Someone gets sent home from school sick, a playdate is missed, the family is frenzied and at least one of the parents feels out of control. "I'm bringing home $200 a week for this?" comes the question that often results in the family downsizing to one income.
But that calculus leaves out a lot of factors that some financial advisers are starting to warn their clients about. "What about the financial risk of not working?" write Jerry Miccolis and Marina Goodman of Giralda Adisors, a Madison, New Jersey asset management firm, in the current issue of the Journal of Financial Planning.
"The couples who are most at risk when the wife does not work are the middle-income to mass affluent, working age, have children at home and have high income and expenses but relatively low savings," they wrote.
Their argument is that there are long-term costs to not working that everyone should consider before leaving their job. Even those spouses who do decide to quit can protect themselves from some of those risks if they plan ahead. Here are some pointers.
- Bad things still happen to good people. Call them the four D's - death, divorce, disability and downturns in investment portfolios. It doesn't start with a "d" but you can add job loss by the one spouse who is working. When any of them hit, the women who fare best are those who have invested in their own education and careers, finds a study published in October 2013 by the Journal of Financial Planning.
"A woman's ability to earn a decent salary is the most comprehensive insurance policy she can have," say Miccolis and Goodman.
Of course, parents should have adequate life and disability insurance whether they are working or not; nonworking spouses will have to shell out money for this coverage just as they do when they are working.
Furthermore, families with nonworking parents will have to keep more money set aside in a general emergency fund for any of those eventualities. That may even require them to limit the amount they put into higher-yielding retirement accounts or 529 college savings plans so they can build up their emergency funds. If you are quitting your job, do a thorough insurance review and budget for extra emergency savings.
- Kids grow up. Even the most devoted carpool driver will have time to fill when the kids get their driver's licenses and start to break free.
If you're already in the workforce, you can ramp up your career then. But if you've not been working at all, getting back in can be a struggle. Re-entering at the level where you might have been had you worked all the way through is near impossible.
To overcome that, stay in your career, even if you don't have a full-time job. Work part time or consult to keep your hand in. Spend the time and money to hire the babysitter so you can go to lunch with your former colleagues or spend a day at an industry conference, keeping your skills and contacts up to date.
- You'll have to be "selfish" either way. Some career-oriented mothers feel guilty when they look forward to the office every day, even if they are earning money that advances their whole family. Guess what? Guilt is a mother's lot in life and you'll probably feel badly about something else if you stay home. You will still need to put yourself first, sometime.
For example, even if you don't earn money, you'll need to spend it on yourself. A nonworking spouse should have access to money for gifts and incidentals, those career-aiding activities and other items.
But, you'll have to go further than that. The nonworking spouse should be covered under a family healthcare plan. The nonworking spouse should have her own individual retirement account, called a Spousal IRA. Even if the family can't afford to make maximum contributions to both spouse's accounts, the amount contributed should be split up so the nonworking spouse's account is also being fed regularly - even if the contributions are not tax deductible.
Having your own IRA and health coverage even if you're not working isn't selfish - it's common sense. After all, you'd look after your babysitter, wouldn't you?
(Linda Stern is a Reuters columnist. The opinions expressed are her own. The Stern Advice column appears weekly, and at additional times as warranted. Linda Stern can be reached at email@example.com; She tweets at www.twitter.com/lindastern.; Read more of her work at blogs.reuters.com/linda-stern; Editing by Andrew Hay)