4 Overlooked Financial Impacts of Leaving the Workforce
If you or someone you know is thinking about leaving the workforce—to parent, to care for aging parents or maybe both—there are many factors to consider.
You’ve probably already looked at the impact on your current lifestyle. You might have done the math and found that, while it’s true that giving up one income should mean less family money, avoiding the cost of childcare, commuting/parking, lunches, dry cleaning and other costs of working outside the home could offset a good chunk of lost wages.
And you’ve likely thought about the emotional aspects of the decision, concerns about loss of professional identity after putting so much into building a career, and worries about returning to the workforce after time away.
All of these factors make the choice extremely difficult. When it comes to finances, however, many couples figure if they can afford to forego one paycheck, they’re done with that part of the decision. In reality, the situation is much more complex. Following are just some of the most typically overlooked financial topics that should be part of your decision-making process.
1. Impact on long-term savings. Giving up earnings today also affects future income—by decreasing Social Security and 401(k) contributions. You’ll want to project whether you can still meet your retirement plan goals if one spouse stays home.
2. Insurance. Most people recognize that a breadwinner needs life and disability income insurance to protect the income other family members would lose should something unexpected happen. But stay-at-home spouses (who’ve lost the coverage they had gotten through work) need protection, too. If the stay-at-home spouse became disabled or died, the family would likely incur costs for things like childcare, housekeeping, cooking, driving and more.
3. Taxes. Moving from two incomes to one may change your tax bracket. Talk to a tax professional to see if you should change tax withholding for the spouse who continues to work outside the home.
4. Workplace perks. If your employer provides benefits like paid time off, a mobile phone or company car, you’ll want to make sure you can replace those perks personally or be comfortable losing them if you stay at home.
Yes, this is an incredibly difficult choice—but by discussing these factors openly and thoroughly, you and your partner can come to a well-informed decision that will help you move forward confidently.