One of the most challenging questions that parents-to-be can face is whether to leave the workforce to have children.

According to the Bureau of Labor Statistics, 67.9% of mothers with children under age 6 participated in the labor force in 2022, with a slightly higher number (76.7%) with children ages 6 to 17 participating in the workforce. For men, 94.4% with children under 6 and 91.8% with 6-to-17-year-old children were working. While the number of stay-at-home fathers is increasing, this is still a decision that appears to primarily affect the labor force participation of women.

Pre-pandemic, 18.1% of women with a graduate degree who had given birth in the last year had not returned to the workforce in 2019, compared to roughly 60.9% of women with a bachelor’s degree.

While an emotional and cultural decision for families, leaving the workforce to stay home with children is also a complex financial decision. Many parents may compare the cost of childcare with the impact of lost wages, but there are several other factors to consider when deciding to leave the workforce to care for a child.

Forfeiting More than Just Salary

When taking time off from work to care for children, you forgo any wages that you could have earned while working. The National Bureau of Economic Research estimates that having a child can cost the average high-skilled woman $230,000 in lost lifetime wages. You may also miss out on potential wage growth accumulated during a career. Further, research by the U.S. Census Bureau found that many might even earn less than they did before exiting the labor market: For mothers who returned to the workforce, earnings fell by an average of $1,861 in the first quarter after birth compared with earnings pre- or in early pregnancy.

As many employers provide retirement account plans, those who leave an existing job must also understand that they will not be able to contribute as regularly to a retirement plan, like a 401k or Roth IRA.

There are also less measurable financial consequences to consider when taking extended time away from work. People who work in rapidly changing industries may have a knowledge gap when they return to the workforce – their formerly marketable skills may become less relevant.

The Rising Cost of Childcare

Despite these potential benefits of staying in the workforce, ever-increasing childcare costs should be evaluated in deciding how to care for children. A poll on Care.com found that 51% of parents spent more than 20% of their household income on childcare, while 72% spent at least 10%. For the average middle-class family, childcare constitutes 14% of household income.

Childcare costs rose significantly during the pandemic and have remained elevated. The cost of babysitting and daycare increased between 5% and 15% for families, while nannies jumped 20%. The average cost of a nanny for one child was $694 per week in 2021, vs. $565 per week in 2019. Exorbitant childcare expenses can be a motivating factor in a parent’s decision to temporarily leave the workforce to raise young children.

Changing Times

With the arrival of remote work during the pandemic, alternatives to either paying for childcare or staying home from work have become more common. A parent who would have traditionally left a full-time job to stay at home can now work at home for part of the time or take on contracted work.

There is flexibility in which spouse decides to stay home while the other goes to work. Though most research on leaving the workforce centers on women, the number of stay-at-home fathers has risen 8% since 1989, topping 2 million for the first time in 2021. Of the men who do stay home, 23% are doing so specifically to care for children, as opposed to being home due to unemployment, illness, or disability. In households with two parents, it can be worth assessing which spouse should leave the workforce based on certain financial factors, such as career trajectory or earning power.

What Should I Do If I Decide to Stay Home with My Children?

If you do decide to stay home to take care of your children, there are several steps that you can take to protect yourself and your family.

• Protect yourself in case of divorce: While no one wants to think about separating from their partner, it is important to be prepared in case of divorce. While some courts may provide alimony to the stay-at-home mother or father, this is situation-dependent and is becoming increasingly rare. Signing a pre- or postnuptial agreement with your partner can ensure that the partner who has forgone paid work is taken care of in the case of a divorce. While this process does require each person to have their own legal team, it does not have to be contentious and can set clear guidelines should a separation occur.
• Prepare for the loss of the working spouse’s income: In families with only one parent in the workforce, the loss of their income can be devastating. In the case of the working partner’s premature death, life insurance and up-to-date estate planning documents can ensure that the family is provided for. Life insurance policies should ideally provide support until any children are grown and for the surviving spouse’s retirement. Adequate provisions for the stay-at-home mom or dad should also be laid out in any wills or marital agreements.

In some states, like New York, the assets would be divided between the surviving spouse and the children if no will or estate planning document says otherwise. If the children are minors, a court would be charged with overseeing the assets until the kids turn 18. At that point in time, they would be granted unrestricted access to the funds. A properly drafted will can prevent this from happening. Ideally, the will provisions should be incorporated into the prenuptial agreement so that the nonworking spouse is protected even if a will is not in place, if it is held to be invalid, or if the working spouse decides to change it.

A serious disability can also result in the loss of a working parent’s income, but a sufficient long-term disability insurance policy can prevent the financial dislocation that can result if the working spouse develops a disability.

• Discuss how income will be managed: With only one paycheck, it is important to consider how this income will be shared between two spouses. Will it be deposited into individual accounts or a joint account? If it goes into an individual account, how will the funds be shared? A stay-at-home parent should have access to funds not just for family expenses, but for personal needs as well.

Note that if one or both spouses are not U.S. citizens, transferring money from one spouse to the other or into a joint account can have gift tax consequences. Couples in this situation should consult a lawyer with estate tax expertise to devise a tax-friendly arrangement.

• Continue to invest in yourself: As employers’ needs change, it is important to ensure that your skills do not become redundant in the case that you do decide to return to the workforce. Reading industry news, maintaining certifications, and taking classes can help keep your skills fresh. Staying active in professional organizations can also help you stay up to date, and those connections may be helpful if looking for a job later.

In addition, caring for children is one of the only jobs where you are required to work 24/7, 365 days per year. It is also important to care for yourself – take a vacation every once in a while!

Parenting can be one of the most rewarding – and challenging – parts of anyone’s life, regardless of whether you continue paid work or decide to leave or pause your career to be home with your child. The decision is highly personal, and there are several pros and cons that cannot be measured in financial terms.

Before you make the decision, however, it is important to carefully consider how it can affect your family’s financial well-being and to prepare for any scenario that can arise. Reach out to NextGen@bbh.com if you need help working through these considerations.

We thank Shannon McNulty, founder of The Village Law Firm, for her contributions to this article.