I need suggestions for ways (plans?) to save for retirement when you're a stay-at-home parent. I max out my IRA contributions every year, but that just won't be enough for retirement later. Ideas?
First, consider how much money you will really need when you retire. Will you continue your present lifestyle, spend more or spend less? I find I spend considerably less except when I travel because I need fewer clothes and drive less. I also entertain less these days.
In addition to IRAs (I recommend Roth IRAs when possible), one might consider investing in variable annuities for their growth benefits. They will grow tax-free until money is withdrawn and then money is taxed at your presumably lower retirement rate. If they are not part of your IRA, you can withdraw a certain percentage of money each year without penalty. Usually by the seventh year of ownership, withdrawals have no penalty anyway. Be sure to compare several; they vary in safety, return and guarantees. Though these are annuities, you are not required to annuitize them at any time.
In addition, spouses can draw benefits on the working spouse's account starting at retirement age. If the working spouse predeceases the non-working spouse, the stay-at-home spouse can start receiving the full benefit that the working spouse received. Remember, however, that this system can change.
It might also be wise to consider life insurance in case of unexpected death of the earning spouse to make sure that pre-retirement needs are taken care of. I recommend term life because it is "pure" insurance and therefore cheaper.
Some mutual funds are geared toward retirement goals and may be more "tax efficient" than others. Check out the most reputable companies for these. Stick to no-load funds. Annual fees should be less than 1% of invested assets. Consider investing a set amount monthly.
I also suggest checking with a fee-based financial planner for other alternatives. Make sure the planner does not earn his living based on the funds he suggests to you.
Barbara in CT
I am a stay-at-home wife. I have retired because of a disability, and this is what I have done to help my husband pay for my retirement. When I write a check, I add the amount up (i.e. $9.99 = $10.00). This leaves a penny in the kitty. At the end of the month, I balance the checkbook to the penny. The difference goes in my savings account. I write about 50 to 75 checks a month (this counts debit purchases).
Even if the amount is $5.01, I make it $6. The 99 cents goes into the kitty. Some months it can get quite high. When I balance the checkbook, I also write a check for the difference, and it goes to my fund. This could also work for folks saving for education, a trip, or a special purchase.
My husband makes a set amount of money at his job, but he gets an incentive pay for extra purchases made by his customers. That incentive pay goes right into his 401k.
I would suggest adding a plain old savings account where you can stash savings from clipping coupons or shopping grocery sales. If you deposit the saved money in a separate account, it won't get frittered away. My father told me that my mother put all the money she saved from clipping coupons and shopping loss leaders in a bank account for one year when I was a teenager. This was over 40 years ago. At the end of the year, there was over $3,000 in the account. It's not "saving" the money at the store as much as it is managing the pennies saved.
A plain old savings account can also be a place to stash unexpected income like when someone sends you $20 for your birthday. Only spend part of it and save the rest. For me, half worked.
When my children were young, they helped me pick up pop cans on our walks to add to the soup cans, etc. that we recycled. That money went into a glass jar and bought our fruit trees, but it could go into savings for retirement. Again, it is managing the pennies saved. For me, planting the trees meant I didn't have to buy fruit for 15+ years, which was a significant savings on our food budget. I also traded some with neighbors for other things.
Since there does not seem to be an anticipation of more income to save or invest, I would suggest taking all steps to become and remain very healthy and to learn assorted "homesteading" skills such as vegetable gardening, preserving foods, cooking from scratch, and sewing.
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