Taking the step to put your career on pause is not an easy one. It doesn’t matter if it is to become a stay-at-home-parent or to start your own company. Emotions and finances are the main factors in the decision of whether this makes sense for you.
I had lunch with a pregnant friend who is considering staying at home for the first few years before the kids are in full-day school. Because no change happens in a vacuum, she is also considering changing tech careers. Should she switch careers now, or should she stay at home with the kids and worry about the career switch later?
We looked for a quick calculator to think about the dollars lost and found one at the Center for American Progress website. For a 30 year old employee with a salary of $90,000, staying at home for 5 years could lead to a loss of more than $1,138,636 in lifetime income.*
This excludes stock compensation effects or a loss in disability insurance if an accident occurred during that time.
This was way more than she initially considered and it brought up some good points in our chat:
Money as quantitative
Each lost year of employment could cost a family more than three times a parent’s annual salary by:
- missing out on current paycheck
- missing out on wage growth
- loss of current vesting stock options or RSUs (stock compensation)
- missing out on retirement investments and compounding growth
- potential loss from no disability insurance coverage
- loss of good medical coverage and employer paid premiums
Money as qualitative
Each lost year of income could cost a family emotionally by:
- adding financial stress in making ends meet
- not being prepared for future hardships or expenses larger than current savings
- extra stress on partner to maintain stable career
- feeling financially insecure
- missing out on hours of early children’s lives
- providing a less stable environment to children at home
- not feeling as satisfied outside of work without acknowledged achievements
Each family is different in the tradeoffs and concerns. Some may already have 2 years worth of emergency savings in cash with a large retirement egg. Others may still be saving toward 6 months of emergency savings while trying to save some for retirement and pay-off student loans.
The goal is to be informed and consider all sides of the situation. Do some research and find out what may be best for you. If you’d like help in the process, contact me to discuss a quick-start project to set you up for success in this big decision and life change.
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The above discussion is for informational purposes only. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.
*The Center for American Progress’ calculator (http://interactives.americanprogress.org/childcarecosts/) considers current lost wages, lost wage growth, and lost retirement investments with compounding growth over an individual’s lifetime.
