If you have already started a family or are planning to go there, you already understand the costs associated with kids, particularly solving the dilemma of going back to work or staying at home. Driven mainly by concerns over the household budget, parents doing their sums are weighing the rising costs of childcare against government benefits and tax concessions.
Should one of you stay home? Should you both work?
Childcare services cost, on average, $116 a day, while a nanny can charge up to $35 an hour.
Unfortunately, it’s going to cost you no matter which way you go, but while most people are thinking about their finances here and now, they’re not considering the long-term impact on retirement savings.
As the costs of childcare increase, one parent staying home while the main income earner goes to work might see them better off in the short term, but what does that do to the stay-at-home parent’s super?
According to research undertaken by Canstar, an individual earning an average of $50,000 per annum could expect to lose up to $34,000 in the first year. This figure increases to as much as $95,000 in three years when factoring in inflation, tax and lost investment earnings. Extrapolate that out to ten years and … well, you get the picture.
Considering our aging population, increased pressure on governments to provide infrastructure and better services for the elderly; there will be a much greater expectation that we’ll be funding our own retirements.
So, what can you do? Is it possible to raise children and retire in style?
The Retirement Planner calculator on ASIC’s MoneySmart website (https://moneysmart.gov.au/retirementincome/retirement-planner) can assist you in determining how a career breaks will affect your super at retirement. Complete your details as required and under the “Changes to your income that affect super” section, select “Yes” to be able to add in details of a career break.
Before you race off to your nearest animal shelter and adopt a “furry-kid” instead of having the human version, there are options.
Parents opting for the one-stays-at-home approach might consider spouse contributions. Under this scheme, the working spouse contributes to the low- or non-income earning spouse’s complying super fund. Tax concessions may apply.
Before starting a family, consider boosting your super with voluntary after-tax contributions – staying within the limits of course. While at this stage it’s also a good idea to ask us about alternatives that suit your current needs and future dreams.
Talk to us today and we can work out a financial plan customised for you and your family.
Sources:
AMP.NATSEM Income and Wealth Report Issue 35 – Childcare Affordability in Australia, published June 2014.
Care for Kids: Cost of Childcare
