For families with a stay-at-home parent, the financial planning process all too often has a tendency to focus on the parent participating in the workforce, but special consideration needs to be paid to both the breadwinner and the stay-at-home parent to make a complete and solid financial plan. For families with a stay-at-home parent, financial planning requires special care to ensure any financial holes that might have otherwise been filled by employment are covered.
Forbes personal finance blog, Financial Finesse, included a post by Nancy Anderson, CFP® discussing potential holes in planning for stay-at-home parents that could cause major problems for a family’s financial outlook.
Financial Planning’s Gaping Hole That Spells Disaster For Stay-At-Home Parents
Forbes Financial Finesse Blog
By Nancy Anderson, CFP®
“They never build a retirement plan, they may never get full Social Security benefits, college funding may be impossible, disability or premature death of either spouse can have even more serious consequences for the family than in families where both spouses work outside of the home.”
This article discusses “five special financial considerations for stay-at-home parents,” which are included below:
1. “Obtain life insurance on the stay-at-home parent.”
When the financial planning process covers life insurance, the importance of the working spouse’s coverage is a clear need. If the working spouse were to die, his or her future earnings stream would need to be filled by an insurance policy. The expense of caring for children and the home is usually a big factor families consider when deciding if a parent will stay at home, but is not as often a consideration when looking at life insurance needs. Obtaining life insurance on the stay-at-home parent to help cover the cost of the duties performed by that parent can help fill a gaping hole, at least financially, if that parent were to die.
2. “Supplement term with permanent insurance.”
While a family has younger children, term insurance can be a less expensive solution to help increase insurance coverage on the stay-at-home parent. The policy can be dropped in the future as the children grow into adults and the family’s investments build.
3. “Check the “occupation” definition on the working spouse’s disability insurance policy.”
Make sure the working spouse’s disability policy will provide coverage in the case of a long-term disability by paying special attention to the policy’s definition of disability. The writer points out different definitions of disability. The most favorable definition is “own occupation”, which means “the policy will pay benefits if you are unable to perform the duties of your current occupation.” The least favorable definition is “any occupation”, which means the policy will only pay benefits of you are not able to perform ANY occupation, leaving lots of wiggle room for the insurance carrier to not payout benefits. If the working spouse’s coverage leaves gray area in how disability is defined, an additional policy should be considered.
4. “Put college funding on the back burner.”
We hear this advice often from financial planners – parent’s should not sacrifice their retirement savings for their children’s education cost. This is hard for parents, as they are used to always putting their children’s needs above their own. Parents may feel even more pressure hearing about the burden of student loan debts in the news, but the writer makes a good point by reminding parents there are grants and loans available to students to help pay for the cost of college, but there are no such options available to help you pay for retirement.
5. “Make joint decisions on investments.”
The spouse participating in the workforce and “bring home the bacon” often by default becomes in charge of making all the investment decisions. Just because that spouse earns money, doesn’t mean he or she is more qualified to make investment decisions, or should be able to make all financial decisions for the family. Spouses should be open with each other and both be fully aware of the families financial situation. Planners need to help ensure both spouses are engaged in the planning process and both spouses’ needs are considered when making investment choices.