Single income vs dual income for retirement

[hakuna matata]

On another board I am a member of (non finance related) there is an interesting discussion about if a single income household can afford a house, etc. In my opinion, yes a single income household can certainly do that. People often do this if they have young kids at home and daycare costs exceed the income of the second earner, etc. Makes perfect sense.

But a side discussion had me curious. Once the children are old enough does it make more sense for the spouse to go back to work? My take is that if you are used to living off one income, go back to work and use ALL of the money from the second income for your retirement. But I am clearly in the minority there on this issue--I wonder what people here think.

My reasoning--if the second income brings in say $40k after taxes, you in essence can each put away $15.5k (plus hopefully employer match), each maximize your Roth at $5k---and really haven't impacted your life in any signficant way.

Of course the temptation to increase your lifestyle is there, but if you are discplined it seems like a great way to jumpstart your retirement plans.

[LivingAlmostLarge]

You make the assumption that the second income is a high second income.

[AmbitiousSaver]

To me work/life balance would be more important because esp being a Navy family and having no reliable family within a 1500 mile radius, if my husband is out to sea and my job gives me a hard time for taking time off to take care of my sick kids (which I have four of... sick days among them can probably rack up real quick) and that doesn't count doctors appt, dentists, school conferences, extra-curriculars.. always arranging for before/after school care and summertime care... sometimes its just too exhausting and not really worth it.

I'm however lucky that I work from home and make about 40% of the household income. SO when I get a call from the school telling me my son threw up, I can pick up and go... then come back and if I am up at 3 am with my newborn finish up a report.

[hakuna matata]

Originally Posted by LivingAlmostLarge

You make the assumption that the second income is a high second income.

True--but even if it is not. If you are used to living off say 30-40K and the second income is $10k--you are still 10k closer to retirement then if the spouse didn't work aren't you? If it is all being eaten up by childcare or transportation costs, etc--then I agree it makes no sense to work that second income. But without those issues it still seems to make more sense to me to bring that money into the household for retirement.

[AmbitiousSaver]

I also wanted to mention a non-financial issue that I'm not sure how you put a price on it... but both my parents were workaholics. At the end of the day, as a teen - my siblings and I were often left to our own devices. Now none of us ended up in jail or anything... well, with the exception of my sister who got arrested for shoplifting. I can't help but think if they had been more involved and not so much into the workaholic mode... they would have been more aware of the struggles and issues we faced as teens. I wouldn't have had an eating disorder that went unnoticed, my sister wouldn't have done drugs or got into stealing, and well my brother was probably the only stellar one since he was the oldest and held to a higher expectation. Soooo... grant it, in the end, 10 years later we are all okay... but its a consideration in my mind when I think of how much I want to be a business woman in balance with my children.

But I'm not sure how you weigh that with the whole picture yet I just wanted to bring it up cause I think people can forget that even as the kids get older... they still need attention, just a different type and a second job may still need to be somewhat lax as if the kids were younger.

[disneysteve]

Originally Posted by hakuna matata

Once the children are old enough does it make more sense for the spouse to go back to work? My take is that if you are used to living off one income, go back to work and use ALL of the money from the second income for your retirement.

This is exactly what we do. My wife was a SAHM for 10 years. She then took a job that basically fell in her lap (she wasn't looking for work but a perfect opportunity presented itself). We were putting 80% of her income into savings. When she left that job early last year, she didn't work for a few months and then another great opportunity came her way. She now works part-time, 2-3 days/week for 6 hours/day. 50% of her salary goes into a 401k (plus the company match). That's the max they would allow. We wanted to do 100%. The remainder that actually comes home after taxes is minimal so I don't really designate it for savings but it probably ends up there in the long run. I often remind her that every dollar she earns is one less that I have to earn before I can retire.

[hakuna matata]

Originally Posted by AmbitiousSaver

But I'm not sure how you weigh that with the whole picture yet I just wanted to bring it up cause I think people can forget that even as the kids get older... they still need attention, just a different type and a second job may still need to be somewhat lax as if the kids were younger.

Oh I agree 100% - we wouldn't have done this if we felt it had a huge impact on our daughter. But neither my wife or I are workaholics by any stretch of the imagination. I am an Architect and my wife works in a government position. We are always home by 5 everyday and make our daughter our priority. In fact today we are both working from home because our daughter graduates from elementary school today! I think it is important to be at milestones such as this, then we are taking her and a friend out to dinner and the baseball game. Balance is very important.

I strongly believe that moderation in all things is important, even with money. We live a good life now, spend money and enjoy life with our daughter--but we also save for our retirement. Now perhaps our situation is unique (hard to tell when you are living it right!), I recognize that we have a lot of flexibility that others might not have.

But my initial stance doesn't change even if it is a part time job where you pull in 5K--that is still money that can be put away that is not coming in. I see no value to working a job that kills your family life, but it seems surely a balance between that extreme and not working at all can be found.

I have friends who have children 16 years and older and the wife is still at home, and they are struggling on one income and have very little set aside for retirement. Seems at some point when circumstances change you need to re-evaluate the situation and make adjustments.

[disneysteve]

Originally Posted by hakuna matata

I have friends who have children 16 years and older and the wife is still at home, and they are struggling on one income and have very little set aside for retirement. Seems at some point when circumstances change you need to re-evaluate the situation and make adjustments.

I agree, though this particular example may not apply to your original point. if this woman goes back to work, it sounds like they'd very likely spend her income rather than put it all away for retirement if they are struggling now on one income.

Of course, as we often say around here, most people don't have an income problem, they have a spending problem. More money doesn't solve that.

[maat55]

One thing I have always lived by was that you should only budget your lifestyle on one income. The other income should be for extra's and investing. We budget my wife's income for nothing but investing and car fund.

It's too scary to me to rely on two incomes to pay the day to day bills.

[jIM_Ohio]

It depends on where you are on the savings timeline- starting out, accumulation, growth, stability or draw down.

If portfolio is growing and current contributions do not amount to much, I would argue that the second spouse working might delay retirement. It may affect social security, tax planning, and other issues.

If portfolio is closer to accumulation (where deposits mean something), then I think second spouse working makes sense.

For example, I plan to retire close to when my kids start or end college. So if a spouse had to go back to work after kids left home, I'd be bored in retirement because I could not spend it with my wife.

[LivingAlmostLarge]

I agree with jim it depends on where you are in life. Hadn't considered it until he wrote it.

[hakuna matata]

I agree 'where' in the process is an important factor.

This centers for me around my friends the same age as my wife and I. We are 48 and in the midst of securing financially for our future. With both of us working we are on target to retire at age 55 because we will accumulate enough savings, etc to pull that off.

But I have several friends who make my wage, but their wife doesn't bring in any income to the household. So I see these guys now and again and the biggest issue for them is money and retirement, etc. They all seem to resent their wife not working, but they all also seem to have this resignation or acceptance issue that this is the right thing, etc. It is almost like a rationalization but I have yet to hear a good reason why their wife isn't working -- except she doesn't want to. Now if you both agree and that is what you want out of life--more power to you. But you have to recognize that is a choice and that choice has impact on your future.

Now as I stated earlier if you are paying more for daycare then you bring in, then it doesn't make sense to have both spouses work, or if as jIM_Ohio stated you are near the end of your savings plan it might not make sense. But for the life of me I can really fathom many situations where the extra income wouldn't help---IF used correctly. If you are going to buy a bigger house or car or a nicer vacation, then I agree that doesn't make sense. But for every dollar you invest now it just means you can reach your goal that much sooner it seems to me.

[jIM_Ohio]

But with that additional income might come additional expenses. I am working less now, and gas savings are more than making up for the lost income. Additional wordrobe? Lunches? not enough time to keep home well kept?

There is more to other spouse working than the amount of income.

[tripods68]

I know someone who did not work for more than 30 years. She was a stayed home mom. She had it all, a good wonderful husband with good income and pension retirement. They lived on a modest suburban comfortable home. One summer day, the whole marriage started to collapsed. Eventually they divorced shortly thereafter. Long story short, she owed credit debt somewhere around $80K. Her divorced settlement paid off her credit card essentially. She had no money for retirement since she never worked at all. At 63 years old, she is now working so she can meet the 40 credits required to collect social security. Her kids are now grown but helped her very little. She eventually remarried but never able to capture the life she had prior to her divorced. It was a very sad how the whole thing unravelled for this family. Very sad indeed.

[MonkeyMama]

Agreed with most everything said.

My spouse saves us SO MUCH money staying home.

Likewise, if we are well on track to retirement, I am not sure I See the point of a second income. IF all goes well, when the kids are 6 & 8 (earliest we will consider a return to work) I expect to have 25% of my income going to retirement. So I can easily see us saying, "What's the point of working more?"

For my parents it was mostly they didn't see the point once they felt they were able to return to a 2-income-household. So my mom hasn't worked in 30 years, and my dad will retire soon too (he's not even 60).

I am largely feeling the same way.

(We saved 50% income before kids, so our retirement is doing great, which is another advantage).

Likewise, a hobby that brings in $10k/year on a very small/flexible work schedule can be a lot more lucrative than an expensive job that is taxed very heavily (as larger second incomes are). {"Expensive" meaning clothes, commuting expenses, and paying more for conveniences}. Likewise, someone that doesn't have to worry about household details at work can make significanly more. I think the value of a stay-at-home spouse is often overlooked in that regard.

I strongly agree with what OP and maat said though about living on one income. We have never lived up to a second income. If we had one, we would save most/all of it, just as we did before. But I think like many one-income families we feel we don't need that second income to secure our retirement. On the flip side, our kids should be in college/out on their own by the time we are 45. They certainly shouldn't need babysitting at 18. I think we'll have a lot of working years left and to reap a second income. & odds are that will be a significant bump to our savings.

& yeah, we have always been in the minority in our thinking.

[alw_ays]

I love working, so I'd be thrilled to return.

[lgslgs]

We retired early off of my income only. We've got no kids and we banked just over 50% of my income each year during the final few years before we retired in our mid 40's.

During that time my husband managed the land, repairs, and animal care on our 15 acres. He also grew most of our food and tended to all of the standard daily household work.


There's no way that he could have found a job locally that would have been worth more than the work he put into our home. Every day that I was at work, he was doing things on the homestead to turn it into exactly what we wanted for our retirement years. The value of his work fencing, putting in garden beds, doing repairs, building things and such all continues to pays off in our ability to lead a low cost lifestyle with the kind of home and garden luxuries we've always wanted. And it made my work life so much easier to have someone at home who took care of cleaning, laundry, running errands, and all kinds of time consuming necesary stuff.

A stay at home spouse can make a tremendous contribution to a family's financial bottom line if their goal is to do so.


Lynda

[tabbycat31]

Disclaimer...... I am not married and do not forsee being married in the near future. However if a potential husband had talked to me about staying at home while he worked, in the Donna Reed/June Cleaver fashion, I would view that as that he dosent know me well enough to seriously consider marrying me. Now if he wants to stay at home that's another story.

you also have to consider personality. I know I'd be miserable staying at home (I don't have that homemaker instinct AT ALL) and I would work solely for my sanity.

Not everyone is cut out to stay at home. I'm definitely not. There was brief periods of time where my mom did not work, and in terms of family life, it only brought us further apart than closer together. She also had no idea how to live off my dad's income alone, and spent a good amount of time shopping, etc. I don't really remember good homecooked meals in that time period, and 13 is a hard age to all of a sudden have a SAHM.

[moneybags]

Originally Posted by tabbycat31

Disclaimer...... I am not married and do not forsee being married in the near future. However if a potential husband had talked to me about staying at home while he worked, in the Donna Reed/June Cleaver fashion, I would view that as that he dosent know me well enough to seriously consider marrying me. Now if he wants to stay at home that's another story.

you also have to consider personality. I know I'd be miserable staying at home (I don't have that homemaker instinct AT ALL) and I would work solely for my sanity.

Not everyone is cut out to stay at home. I'm definitely not.

I could have written your exact post 15 years ago. Never say never. I never planned to be a SAHM, before or after I was married. We had kids and decided life would be better if one of us stayed home. I've been a SAHM for 10 years. I still don't have the homemaker instict, but this is what works for our family.