A common misconception is that if you’re not working outside the home, you’re not eligible to save for retirement. In reality, a stay-at-home spouse can have a significant impact on a couple’s retirement savings. Here are six tips to help you prepare for retirement as a stay-at-home spouse.
1. Establish a financial plan.
Establishing a financial plan should be the first step you take toward establishing financial goals and a savings strategy.
A comprehensive financial plan is essential to growing your wealth, avoiding potential pitfalls, and remaining on track toward achieving your goals. A plan can help increase your level of confidence in making financial decisions and ensure your family will be provided for in unexpected circumstances.
2. Focus on paying off debt.
High-interest debt, such as credit card balances, can make a big impact on your ability to save for the future. Interest charges and late fees can add up and quickly result in debt becoming unmanageable, so it’s important to pay these balances off before taking steps to save.
Two effective strategies for paying off debt include the snowball method, which involves paying off your smallest debt balance as quickly as possible, or the avalanche method, in which you begin paying on whatever loan has the highest interest rate. Once that loan is paid off, you move on to the loan with the next-highest interest rate until all loans are paid off.
3. Establish an emergency fund.
Often, high-interest debt results from unexpected expenses you’re unable to cover from normal cash flow, such as a job loss, medical expenses, or an emergency home repair. In a household with a stay-at-home spouse and only one income, it’s important to have at least three to six months of living expenses saved in a short-term, liquid emergency fund that’s available to cover any unexpected expenses. Having immediate access to funds can help you avoid taking out high-interest debt or tapping into your retirement savings in an emergency.
4. Save in a spousal IRA.
Spousal IRAs are retirement savings vehicles specifically intended for non-working or part-time working spouses who would otherwise not have access to a qualified retirement account. A stay-at-home spouse may have the ability to contribute to a spousal IRA if he or she files a joint tax return with a spouse that has taxable compensation. Both traditional and Roth spousal IRAs are available, and the 2024 annual contribution limits are the same: $7,000 for those under age 50 and $8,000 for those age 50 and older.
5. Increase contributions to the working spouse’s 401k.
Although retirement accounts are held in individual spouses’ names, funds contributed during the marriage are considered marital assets, meaning they’re generally considered the property of both spouses. Given this, it’s beneficial for couples with a stay-at-home spouse to maximize contributions to the working spouse’s employer-sponsored retirement plan.
In 2024, individuals who haven’t yet reached age 50 can contribute up to $23,000, and those age 50 and older can make an additional $7,500 catch-up contribution for a total contribution of $30,500. At a minimum, it’s important to contribute at a rate that allows you to qualify for the full employer matching contribution.
If cash flow doesn’t allow you to contribute the maximum to start, consider raising your deferrals by 1 percent to 2 percent each year. You probably won’t even feel the impact on your take home pay, yet these small increases can make a big difference in the balance you accumulate over the long run.
6. Save in a taxable account.
Once you’ve saved the maximum in your 401k and spousal IRA, consider saving additional funds in a taxable brokerage account. While 401k and IRA assets have limitations on withdrawals prior to retirement, funds in a taxable brokerage account are accessible at any time. In addition, saving in a variety of retirement accounts with different tax treatment (e.g., taxable, tax-deferred and tax-free) provides you with maximum flexibility to structure a tax-efficient withdrawal strategy in retirement.
Gene Gard, CFA, CFP, CFT-I, is a Partner and Private Wealth Manager with Creative Planning. Creative Planning is one of the nation’s largest Registered Investment Advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together, including investments, taxes, estate planning, and risk management. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com.