A couple weeks ago my wife got a call from an old coworker of hers. After their chat, she passively asked me about what it would take for her to come back into the workforce. We briefly discussed numbers and flexibility, but quickly dismissed it out-of-hand. However, her broaching the subject stoked the embers deep within my brain and got me thinking. Then, a couple days ago, I received this article written by a new mom who was blown away with the costs of parenthood. I was particularly amazed at this mother’s shock, given that we actually profited from parenting. But, despite some of her ridiculousness ($4,000 for a new crib and carseat/stroller combo, or $600 more per month for organic groceries, really?), I was in full-fledged piqued-interest-mode, and I knew I had to flesh out the numbers for my readers.
My wife and I both had stay-at-home-moms (SAHMs) growing up. We wanted that for our own kids, as well. When Baby29 showed up on the ultrasound a couple years back, it was due time for Wife29 to exit the workforce and concentrate on nesting that house. (Author’s Note: I recognize that it’s 2015 and it is just as likely that a SAHM can just as likely be a SAHD [stay-at-home-dad]. From here on out I’ll say SAHM, but I acknowledge it could be either parent.)
There are some obvious drawbacks to having a SAHM in the family. On her end, she lacks the social and societal outlet that comes with regular employment. Her days are generally pretty dedicated to raising Baby29. On my end, as I’m now the sole bacon-maker, there’s a bit more pressure to succeed financially and take less risk. On the collective front, we get by with a little less money than we otherwise would, and my dream of significantly early retirement is somewhat hampered and delayed (but not delayed by that much).
It’s that financial impact of choosing to go SAHM that I’m addressing today. Specifically, is a family better off by having a stay-at-home-parent reenter the workforce? Or, “Are two incomes better than one?” Spoiler Alert: Yes, but not by much.
Do You Want Fries With That Daycare?
Let’s first talk about our situation. Then, I’ll include a nice calculator at the bottom so interested readers can run their own numbers (or send to a friend), and tailor the calculations to their own situation.
The biggest benefit of dual incomes is, of course, that second salary:
I put what would be a very solid salary for our locality, assuming the parent returning to work is of the mid-career level with some solid experience and credentials behind them. Not only is this person getting a salary, but a 4% 401(k) match. The assumption, also, is that if the parent is returning to work, then you probably don’t need that salary to live, so it is only logical to max out the 401(k) deferral.
We cannot ignore, however, that all of that income is going to go straight into the marginal tax bracket of the married-filing-jointly couple, with it all (less the 401(k) deferral) getting plunked down on top of the current AGI. As such, there are some serious taxes to consider:
These numbers reflect a couple currently in the 25% federal tax bracket with a 5.75% marginal state tax rate. There’s also Social Security and Medicare taxes. If both parents are working, then it’s logical that the child(ren) will be overseen by some other adult. The current dependent care tax credit is 20-35% of the first $3,000 (for one child) or $6,000 (for more than one child) of childcare costs. The credit starts at 35% at lower incomes and decreases to 20% for AGIs of $43,000 or more (which most dual income families are at or above).
Notice that I’m ignoring the tax exemptions of the children because I’m only accounting for changes from a parent returning to work; those exemptions will be there whether that second parent stays home or not.
We also need to account for increases household expenses that come from two working parents:
I figured an incremental cost of $3/day for work lunches. Obviously a work lunch is more than that, but we’d be spending money on groceries anyway, so an additional $3/day seems reasonable—even if the new working parent brown-bags it a couple times a week.
I also can predict that when we’re both going to pick up Junior at daycare at 6:30 pm, we probably won’t often feel too invigorated to go home and cook a nice dinner and make a mess, so I’m expecting a lot more dinners out and to-go. Childcare in our area for a reputable provider run about $200/week. There is also a need for work clothes and a slightly more polished appearance when one is working every day with clients–so $50/month for that. Then, we must not forget commuting costs of about $100/month. This is alarmingly low, but I’m factoring in some employer reimbursement. I also included $100/mo for “other.” I expect there will be some desire to make up for our newly-detached parenting style, which might mean more pay-to-play activities and events, or toys, or a vinyl original of Harry Chapin’s Cat’s In The Cradle, or what-have-you.
Lastly, it’s important to understand our true time commitment to the new job.
Five days a week for 52 weeks minus 15 vacation days and 10 paid holidays equals 235 work days per year. If you factor in an 8.5-hour workday plus an hour-and-45-minute round-trip commute (make sure to include the time to the daycare), then the new working parent is working 2,408 hours per year.
So, here are the results:
Using the above values, my wife would take home $11.24 per hour in cash, with approximately another $9 per hour hitting her retirement account. Keep in mind this is with taking full use of the 401(k) deferral. If she left the 401(k) alone, then numbers would look like this:
So, more cash in hand, but less total compensation.
So, we needed to ask ourselves, is forgoing full-time baby-raising, having a fair amount more stress, not being able to Facetime with the baby each afternoon, not cooking our own meals, spending much more time in the car, missing baby milestones, and having two work schedules to plan around worth it for an extra $11.24/hour of cash or $20.21/hour in total compensation? Probably not.
Keep in mind, also, that this is with numbers returning to work for a salary that is about 3x the U.S. Median Income. If I quickly change the salary to $50k and remove the 401(k) deferral, then the take-home income is just $6.18/hour—over a dollar less than the federal minimum wage. So, I ask again, do you want fries with that daycare?
Run Your Own Numbers
Everyone’s situation is different, so I included this little calculator and would encourage any family that is considering turning a “stay-at-home” parent into a “stay-at-work” parent to run the numbers (all the numbers) to ensure the decision makes sense.
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