# Should You Work or Stay at Home with Your Child?

Once a new baby arrives, figuring out child care can be difficult. Should one parent stay home with the little bundle of joy? Should the parents share the care? Should both work full-time and pay for someone else to watch their infant? This last option can be extremely expensive—as much as a year of tuition at a public college in most states. The short-term and long-term financial implications of this decision can be enormous—and they aren’t always immediately obvious. We wrote this guide to help parents think through the trade-offs.

## Compare Potential Income to Child Care Costs

For some parents, the decision about working or becoming a stay-at-home mom or dad is straightforward, and depends on a cost / benefit comparison of the income earned to the cost of child care. The exact calculation will depend on your income and on the child care options available to you. It might be worth it to you to hang onto a moderate-income job if your parents can step in and take care of their grandchild for free while you’re at work. But that might be different if you live in a high-cost of living part of the country like San Francisco, New York, Washington, DC, or Massachusetts, where you’d have to pay for full time day care at going rates of about \$2,000 per month.

On a purely mathematical level, you can fill-in the following formula to see where you stand.

#### After-tax income of the person who would stay home – child care costs – costs of commuting and other work expenses = Money Left Over.

Then ask yourself how your family would get by if limited to a single income vs. your combined income after child care costs.

Here’s what that might look like for two dual income couples with equal salaries and unequal salaries on the financial side of things.

#### Equal Pay Couple: Each Earning \$50,000 Annually

In this first scenario, the man and woman each earn an income of \$50,000 each (\$100,000 total). We'll start with with the net take-home pay, which includes the impact of taxes.

Before BabyAfter Baby: Both Parents WorkAfter Baby: One Stays Home

Net Take Home Pay

\$72,650\$74,250\$42,600

Full-Time Childcare Costs

\$0\$12,568\$0

Commuting Costs

\$2,400\$2,400\$1,200

Other Work Expenses

\$2,000\$2,000\$1,000

Amount to Live On

\$68,250\$57,282\$40,400

#### Unequal Pay Couple: Earning \$75,000 and \$25,000 Annually

The second couple also earns \$100,000 total, but one person earns \$75,000 while the other earns \$25,000.

Before BabyAfter Baby: Both Parents WorkAfter Baby: One Stays Home

Net Take Home Pay

\$72,650\$74,250\$61,142

Full-Time Childcare Costs

\$0\$12,568\$0

Commuting Costs

\$2,400\$2,400\$1,200

Other Work Expenses

\$2,000\$2,000\$1,000

Amount to Live On

\$68,250\$57,282\$58,942

As you can see, when one spouse earns little money, the family is financially better off when that person stays home and cares for the child, rather than keep working and pay for someone else to watch the child. That approach would hurt the equal pay couple much more. They would have considerably more money to live on if both continued working and they paid for child care. The decision is harder if the financial results are less clear cut. And it doesn't consider the value to a parent of time spent raising their child.

How much money is worth the trade-off of being away from the baby all day long? That's a qualitative decision each family will have to decide for itself.

## Immediate Effects of Becoming a Stay-at-Home Mom (or Dad)

A family that drops from two earners to one typically needs to make some changes to the household budget; entertainment and apparel are some of the easier categories to cut.

Leaving a job to stay home with a child often leads to a certain sense of relief, as the pressures of the workaday world evaporate. However, these are soon replaced by the challenges of round-the-clock child care, housekeeping, and food preparation that usually fall to the parent who is home all day. Depending on your job (and on your child), being a stay-at-home parent might be just as hard as, or even harder than being a working parent.

Also, while you’re home encouraging first steps and first words, the work world will be changing. New technologies arrive, new systems, and new people. The longer you remain out of the work force, the harder it could be for you to re-enter it when you’re ready. Of course, broader economic forces can also play a role in your work prospects if and when you’d like to get a job again in the future. If you return during a time of high employment demand, or your experience and skills have held up over time, you’ll probably have an easy time finding a well-paying new position (this is true in certain careers , as we've found). It will be more challenging if unemployment is high and your skills have become outdated.

To be sure, many moms and dads who stay at home with their children say that any financial or career sacrifices were ultimately worth spending those precious early years with their offspring. Others have decided in retrospect, they lost an unacceptable amount of ground.

## Long-Term Effects of Being a Stay-at-Home Mom (or Dad)

There are also two long-term financial effects of leaving the workforce to raise children that many parents don’t think about much when they are making the decision: the impact on Social Security and on retirement savings.

### Impact on Social Security Benefits

Social Security benefits are calculated by averaging a worker’s income over the best-earning 35 years of his or her life. The system then replaces a portion of those average earnings—about 40% for a typical worker. (The current average Social Security check is \$1,294.)

Parents who leave the workforce to care for their children may be sacrificing some of their prime earning years, especially if they have children at older ages. In addition, if a person works less than 35 years overall, he or she starts to get zeros averaged into the Social Security benefit calculation. Each zero translates to a loss of about \$20 per month in retirement for a median worker.

The Social Security system does help spouses who always stayed at home, or who never managed to earn much money. It offers that person the option of receiving half of their spouse’s benefit, instead of their own. Still, it’s only half.

### Impact on Retirement Savings

For those whose employers don’t offer pension plans, retirement will be funded by Social Security checks and their own personal retirement savings.

The median-earning worker should save about 10% of her income every year for nearly 45 years, and see it grow at about 6% per year, in order to save up the amount she’d need to add to her Social Security benefit to replace 80% of her final income, which is a typical goal for retirees.

Without income in any or many of those years, retirement savings will start to fall behind (and as mentioned above, the Social Security benefit would be lower too). While a stay-at-home mom or dad can use their spouse’s income to fund retirement accounts, this is a lot of extra pressure on a single income.

The tables below show the effects on the same two hypothetical couples compared above, if they attempt to maintain the same amount of retirement savings in all scenarios.

#### Equal Pay Couple: Each Earning \$50,000 Annually, Saving 10% for Retirement

Things are a bit tighter for the equal pay couple after accounting for their 10% retirement goal.

Before BabyAfter Baby: Both Parents WorkAfter Baby: One Stays Home

Pre-tax Retirement Savings

\$10,000\$10,000\$10,000

Take Home Pay

\$64,650\$66,250\$34,600

FT Childcare Costs

\$0\$12,568\$0

Commuting Costs

\$2,400\$2,400\$1,200

Other Work Expenses

\$2,000\$2,000\$1,000

Amount to Live On

\$60,250\$49,282\$32,400

#### Unequal Pay Couple: Earning \$75,000 and \$25,000 Annually, Saving 10% for Retirement

On the other hand, the couple making different amounts has more of a buffer at the end.

Before BabyAfter Baby: Both Parents WorkAfter Baby: One Stays Home

Pre-tax Retirement Savings

\$10,000\$10,000\$10,000

Take Home Pay

\$68,250\$66,250\$53,142

FT Childcare Costs

\$0\$12,568\$0

Commuting Costs

\$2,400\$2,400\$1,200

Other Work Expenses

\$2,000\$2,000\$1,000

Amount to Live On

\$63,850\$49,282\$50,942

## Finding the Right Balance

Single parents might not have much of a choice here. If they earn a decent income, they must keep working, or else have to live on family kindness or paltry public benefits. Two-parent families with one very low earner also have an easy decision - that person’s time is more valuable for childcare and household upkeep. Also, if one parent is a mega-earner, his or her spouse might also stay home with the children without experiencing any significant financial harms.

For families that benefit a lot from having two earners, there are some ways to try strike a balance between work and child care. If their jobs offer some flexibility (not always possible, of course) each parent might try to schedule their workday either on the early side, or on the late side, to minimize the amount of time a child spends with a care provider. For example, mom can work 8 a.m. to 4 p.m.; and dad can work 10 a.m. to 6 p.m. Then, the child only needs care between about 9:30 a.m. and 4:30 p.m. (allowing for some commuting time.) The parents should both be saving for retirement, and should think about child care as a joint expense, rather than an amount that is deducted from one person’s income (after all, both get personal benefits from having a child). Once the child starts school, they should save the money they were spending on child care in a college savings account.

This approach addresses most of the pressing needs of a middle class family in the U.S. today. We need to pay ongoing expenses, to save for retirement, to care for our children and save for their educations.

Sterling Price is a research analyst at ValuePenguin specializing in health and life insurance. He graduated from Syracuse University with a bachelors degree in Finance and Accounting and has previous experience as a licensed life insurance representative.