The Complete Guide: How to Retire as a Stay-at-Home Mom by Funding Tax Free Retirement Accounts
The goal of this post is to help you understand the benefits of retirement accounts and how you can start saving early as a SAHM (Stay at home mom).
Retirement accounts are a great way to save for your future. They offer a tax-free environment, which means that your money grows faster and you don’t have to pay taxes on it when you withdraw it later in life. You can also use retirement accounts as an emergency fund, so that if something happens in your life and you need money quickly, there’s enough there for you. You can even use them as a way to save for college or for a down payment on a house.
As a stay at home mom it can seem unattainable to retire and just because you don’t bring in an income, you are contributing to your household and deserve to have money for retirement too.
Retirement is a tough topic for stay at home moms. They don’t have a salary to work with, but they are contributing to their households in other ways. There are many financial options that I’ll discuss below for stay at home moms that allow them to take advantage of the skills and talents they have in order to save for retirement.
The Types of Retirement Accounts You Can Fund
There are many different types of retirement accounts that you can fund. The best type for you to open depends on your specific situation.
401k
One of the more common types of retirement accounts is the 401k plan. This is a type of account that many employers offer to their employees, and it can be funded by both employer and employee contributions.
Did you know there is a self-employed 401k option?
Another common type of retirement account is a Roth IRA. These are individual retirement accounts that have tax-free withdrawals in retirement. They also have no minimum required distributions at age 70½ like other traditional IRAs do, which means you can leave your money in this account as long as you want without any tax consequences or penalties.
How Much Money Do I Need for Retirement Savings?
The Rule of 80 or 25 (depending on how you look at it)
If you’re not sure how much money you need for retirement, remember the rule of 80. Many people consider 80 as the age to fund to. Pay attention to your current budget. How much do you need to live off of now? Multiply that amount by the number of years until you reach 80.
To get a good idea of how much money you need to save for your retirement, use a retirement savings calculation. This calculation helps you estimate how much money you will need to have saved by a certain date in order to maintain your current standard of living.
Example: a 35 year old’s annual living cost is 50k. They plan to retire at 55 and will have 25 years until they reach 80. So take 50k x 25 years=1,250,000. In this scenario they would need approximately $1,250,000 in their retirement accounts to comfortable retire without changing their current lifestyle.
The results show how much you should be saving each month and year, and what percentage of your salary should be deducted for these savings.
Another Example: a 45 year old’s annual living cost is 100k. They plan to retire at 62 and will have 18 years until they reach 80. So 100k x 18 years= 1,800,000. In this scenario they would need approximately 1,800,000 in their retirement accounts to comfortably retire without changing their current lifestyle.
What’s the Best Way to Invest in my Retirement Account?
The first step is to decide if you want a pretax or post-tax account. Pretax accounts are funded with pre-tax dollars, meaning you get to deduct the investment income from your taxes. Post-tax accounts are funded with after-tax dollars, which means your investments will not be tax deductible.
Some people prefer pretax investing because they enjoy getting a deduction on their taxable income, but others may not want deductions on their taxable income because they don’t have much money in other deductions and they would rather have more money at the end of the year than pay less taxes now.
The next step is to decide what type of fund you want to invest in. Next, we’ll discuss the best type of investments in these accounts!
Conclusion
As a SAHM, you’ll have spent years investing in your family’s future, it’s important to invest in yourself and your future too! I hope this guide has helped you understand more about retirement options as a stay at home mom!