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Friday, 3 March 2017

New baby on the way? Chances are you're wondering whether it makes sense for you or your spouse to stay home full-time.

According to the Pew Research Center, 29 percent of mothers and 16 percent of fathers were at-home parents. But before making the complicated decision to join their ranks, there are some financial factors to weigh:

Raising a child is expensive

To raise a child born in 2013 to the age of 18, it will cost a middle income couple $245,340, according to federal estimates. That figure does not account for a college education, either. Experts predict that a four-year degree at a state university will cost about $150,000 for babies born today.

Working has costs, too

As CNNMoney notes, childcare costs keep rising, and in some states, costs "exceed tuition at state colleges." The average annual tab for center-based care for an infant ranges from $4,863 in Mississippi to as much as $16,430 in Massachusetts, according to federal figures.

And of course, you'll need to pay for professional clothes, a daily commute, and some coffees and lunches. One study in the United Kingdom found that working women spend an average of 18 percent of their salary on their professional wardrobe. Using the IRS 2015 mileage rate of 57.5 cents per mile, a full-time employee with a 60-mile round-trip daily commute could spend approximately $8,280 per year on commuting costs.

Also keep in mind that a couple's income is usually taxed at a combined rate. For example, if a wife earns $35,000 per year, and the husband earns $100,000, both incomes are subject to a combined 25 percent federal tax rate, even though as a single filer, the lesser income would be taxed at just 15 percent.

So, if both spouses worked, the take-home pay would be $109,538 (this is net of federal taxes and before deductions). If only the husband worked, the take-home pay would be $83,288 (estimate your taxes with this calculator). In this hypothetical, then, the wife's job adds $26,250 to the family bank account over the year, before other expenses are accounted for. Meanwhile, if the wife filed as a single person, she would take home $30,658.

There is a career cost

In recent years, there has been a lot of research into the financial costs of stepping off a career path. The New York Times reports that one survey of thousands of female professionals found that a third took extended periods off from work. And while most wanted to re-enter the workforce, some struggled to get jobs, taking lower paying positions.

In The Price of Motherhood, author Ann Crittenden reports that educated women who stay at home to raise children forfeit a total of about $1 million in lost and reduced wages and retirement income. Some research suggests that the penalty is steeper for men who stay home full-time with children; one study, for instance, found that men who took time off for domestic reasons received poorer performance reviews than women who did the same.

Regardless of which parent opts out of the workforce, chances are good it will impact your finances long-term. After all, the fewer years you work, and the less you earn over your lifetime, the less you will receive in Social Security, which is based on the average of the 35 highest—earning years of your work life. While everyone of course is eligible to save and invest, no job means no employer 401(k) match, and no income means you do not qualify to contribute to an IRA — or the related tax breaks.

What is good for your family

Every couple needs to find the solution right for their family. It's important to note that a review of 50 years of research has concluded that kids raised by working moms fare just as well as those with stay-at-home moms. One Boston College study of more than 10,000 families found that kids in low-income families where the mother worked performed better in kindergarten than their peers whose moms stayed home during their early years.

Do not ignore your needs, either. Studies have found that working moms are less likely to be depressed and happier and healthier than those who stay home full-time – even when they say they wish they weren't working outside the home.

Parents tend to be most satisfied when they're finding that right fit — even when it involves sacrifices. Pew surveyed parents who made family-related sacrifices for work like quitting their jobs or turning down a promotion and found that 46 percent of mothers and 38 percent of fathers who had made these concessions were “very happy" with their lives, compared with 31 percent of moms and 36 percent of dads who had not made these sacrifices.

Finally, there may be a middle ground between leaving your job and working full-time. Boston College researchers have found that one in five companies now allow for flexible work schedules. Further, freelancing is on the rise, with one-third of works now performing some kind of contract work – a figure expected to grow to 40 percent by the end of the decade. Although alternative work arrangements, especially freelancing, may require financial sacrifices, it may be that such an arrangement provides you with the balance you seek. 

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