Discover essential strategies for stay-at-home parents to secure their retirement, from preserving savings to building personal investments and planning for financial independence.
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When one parent becomes a full-time caregiver, the shift from two incomes to one places a strain on the family budget while the costs of raising children increase. Too often overlooked is how the stay-at-home parent will save for retirement. Without a personal income, they cannot build their own retirement fund, leaving them vulnerable, especially if the marriage ends. This decision should therefore be part of a joint financial plan that makes deliberate provision for the stay-at-home parent’s future security.
Preserve your retirement savings: If you leave employment to raise children, preserving your retirement fund benefits should be a priority. Even a relatively modest sum invested in a preservation fund can grow substantially over time, thanks to compound interest. A preservation fund allows your capital to remain invested, with the added flexibility of permitting one full or partial withdrawal before age 55. Given that your investment horizon may span 30 or 40 years, depending on when you leave work, the potential for long-term growth remains considerable.
Ensure your spouse saves sufficiently: In a single-income household, it becomes vital that the working spouse saves enough to support both partners in retirement. Whether investing through an employer’s retirement fund, a retirement annuity, or both, the earning spouse can contribute up to 27.5% of taxable income (capped at R350 000 annually) on a tax-deductible basis. However, it is important to recognise that your entitlement to a share of your spouse’s retirement fund depends on the terms of your marriage contract – and understanding these provisions is essential to ensure that you are adequately protected.
Build an investment in your own name: Having an investment portfolio in your own name is one of the best ways to safeguard your financial independence. A unit trust portfolio funded by contributions from your spouse as part of the joint financial plan can provide peace of mind. While discretionary investments offer no tax advantages, they also carry no Regulation 28 restrictions, allowing for greater investment flexibility. Over time, this creates a pool of personal capital that remains accessible regardless of the circumstances.
Put life cover in place: Life cover is essential to ensure that the surviving spouse has sufficient capital to fund household expenses, children’s education, and retirement savings should the breadwinner pass away. During financial planning discussions, your advisor should quantify the lump sum needed to meet these obligations, bearing in mind that proper structuring of the policy is critical. If you are named as the beneficiary, the proceeds will bypass your spouse’s estate and be paid directly to you, free of estate duty.
Plan for loss of income: A single-income family is more exposed to job loss or retrenchment. While retrenchment cover is an option, it is expensive and often limited in duration. Building an emergency fund remains the most reliable safeguard, though it takes time and discipline to achieve. Couples should consider various scenarios, such as temporary unemployment, retrenchment, or career change, and put contingency plans in place to reduce the impact on the family’s financial security.
Stay actively involved in the finances: Although the stay-at-home parent is not drawing a salary, they make an immeasurable contribution by managing the household and raising the children. The bottom line is that this role has an economic value and should be recognised as such. It is therefore essential that the non-earning spouse remains involved in all aspects of financial planning, budgeting, investments, and retirement planning. Too many stay-at-home parents find themselves financially vulnerable when their marriage ends, simply because they were not engaged in their joint financial affairs. Remaining informed ensures protection and helps safeguard your retirement future.
Future-proof your career options: At some stage, many stay-at-home parents consider re-entering the workforce. Once children are at school, the opportunity to return to employment becomes more realistic. To prepare, it is important to keep skills current, remain connected to your professional network, and stay abreast of industry trends. This not only provides an additional layer of financial security but also allows for a smoother transition back into the workforce when the time is right.
Staying at home to raise children is deeply rewarding but comes with serious financial risks. Protecting your independence means preserving retirement savings, securing life cover, understanding your marriage contract, and building investments in your own name—while staying actively involved in financial planning to safeguard your future.
* Odendaal is a certified financial planner at Crue Invest.
PERSONAL FINANCE