One of the toughest decisions new parents will make is weighing the pros and cons of one of the parents leaving the workforce to care for the kids as the cost of child care has grown exponentially over the last decade. In a new study conducted by the Organization for Economic Cooperation and Development, the cost for two children, an infant and a four year old, in a child care center is $18,000 a year.
For some parents, it may make sense to leave the workforce for a few years rather than pay for child care. The short term cost would be the parent’s current salary multiplied by the number of years removed from the workforce, less the cost of child care over the same time period. But what is the long-term cost of staying home to raise the kids?
The Center for American Progress released a child care calculator designed to answer that question.
For example, a 30 year old parent with a salary of $60,000 takes three years off to care for a child. This parent would not only miss out on $180,000 in lost wages but another $175,694 in lost wage growth, the cumulative effect of time off on future earnings.
Additionally, this parent would lose another $93,552 in lost retirement assets and benefits, which includes missed 401k contributions (3% employee contribution and 3% employer match) and their assumed growth as well as reduced Social Security benefits. Those three numbers combined represent $449,246 in potential lifetime income foregone to stay at home to raise the children for three years.
This may leave some parents or future parents wondering whether it truly makes financial sense to leave the workforce for a period of time to raise a child. While the dollars and cents speak loudly, for most parents the decision isn’t purely financial. It’s easy to quantify the cost of raising a child as well as lost wage and retirement benefit growth, but it’s impossible to quantify the cost of not being present to see your child take their first steps or hear your child say their first words.
This truly underlies the importance of financial planning when facing a major life event. As planners, we can help in quantifying the quantifiable, but we can also put into perspective what can’t be quantified.
We can also help a parent find a passion that can be pursued outside of the traditional work environment. Freelance or consulting work outside of a 9 to 5 schedule can allow a parent to earn income, contribute to a retirement account and still have time to raise a child.