Can I Retire If I Haven’t Worked?

woman between two childrens sitting on brown wooden bench during daytime
by Advice Chaser
by Advice Chaser

Normal retirement advice involves earning Social Security credits through work, having a 401(k) your employer provides, and taking advantage of pensions. But what about full-time parents? If you’ve been out of the workforce for many of your working years, does that rule out retirement? There are solutions for stay-at-home parents, but you will need to plan in advance for your retirement.

Many full-time parents think there’s no point in considering retirement. Either their spouse will take care of them, or they’re sunk. But your labor outside the workforce still matters, and you have a right to compensation for it, even if your marriage ends. Likewise, you may outlive your spouse. It’s essential to plan ahead to provide for your needs.

woman between two children sitting on brown wooden bench during daytime

Social Security

The standard way of earning Social Security is to work, earning credits for every year on the job. You qualify if you have 40 credits, which you can earn by making at least $6,560 for each of ten years. That’s an amount many caregivers can make with a part-time job, or before or after raising their children. But the payment you receive during retirement will depend in part on what you earned during your working years. That can result in a low Social Security payment from your own work.

However, even if you haven’t worked enough to qualify on your own account, you might still qualify for spousal benefits. If you have a spouse who has earned much more than you have, you may find you get a higher benefit as a spouse than you do as a worker.

Your benefits as a spouse depend on what your spouse’s benefits would be and your marital status. If you are currently married and have been married for at least one year, you qualify for 50% of what your spouse makes. That doesn’t mean your spouse gets half and you get half. Your spouse gets their full benefit, and you get another half, for a total of 150% of the benefit between you.

If you are divorced, you get the same thing, provided the marriage lasted at least 10 years and you haven’t remarried. Or, if your spouse pre-deceases you, you will receive 100% of their payment as a survivor benefit.

Retirement Accounts

A retirement account can provide for both you and your spouse. If your spouse has one through their work, they should save an amount that will be enough for both of your needs. Your spouse should list you as the beneficiary on all their accounts, which means that if they pre-decease you, the fund will pass directly to you.

Full-time parents may also wish to have their own retirement account. Since you’re not employed, you would save your money in an IRA (individual retirement account). While the contribution limits are lower than a 401(k), they are easy to set up on your own. You have a choice of a traditional IRA, in which taxes are deferred till retirement, or a Roth IRA, in which you pay tax on the money now but will be able to withdraw it tax-free later. 

If you divorce, you will have a right to an equal share in retirement contributions and earnings that took place after the marriage. You have invested in the marriage through providing childcare and support, so that money is just as much yours even though you didn’t personally earn it. The actual amount you receive will depend on your individual divorce agreement.

Pensions and Insurance

If your spouse receives a pension through their work, this often does not pass to you on their death. Instead, you may receive a lump sum of whatever amount was still unpaid. Look up the terms to find out if there are any survivor benefits. If not, you can expect a big shock to your retirement income when that pension ends.

This is one reason it’s always important to have life insurance. The more you rely on your spouse’s income, the more important it is to have insurance to replace that income if something happens. The sooner you purchase a life insurance plan, the cheaper it’ll be. 

Sit down with your spouse and calculate your joint income and needs, both now and in retirement. You will need insurance to replace any income that would be lost if one of you passed away. That includes not only the income of the main earner and any pensions in retirement, but also the unpaid childcare labor of the full-time parent. If you weren’t there to provide it, your spouse would have to pay to replace it.

Retirement Planning for Full-Time Parents

Even if you don’t earn an income, you have every reason to be involved in retirement planning. Make sure you’re up-to-date on your spouse’s retirement plans and attend all meetings with your advisor. A good financial advisor will make sure to consider the needs and wishes of both spouses. To find an advisor who will keep you in the loop, contact us today.

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