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My husband and I are in our early 30’s and are expecting our second child. My husband is an electrician and his firm does not have disability or life insurance benefits, nor does it have a 401(k). I am worried that we aren’t set up well if something were to happen to him. We opened an IRA through Vanguard but aside from that, I don’t know where to begin for term life or disability, and how else to maximize his retirement savings. (We are also in the ‘most expensive’ time of our lives — we recently cut our daycare bill in half by switching to in-home but we still spend 1/5 of our take home pay on daycare which will double when we have our second baby later this year).
I love this question because, in one paragraph, it covers so many things my clients are going through: figuring out employee benefits (or what to do if you don’t get any), saving for retirement while budgeting for expenses you have now, and paying for child care.
You’re right that as parents of a young child (with another one on the way — congrats!), you need to prioritize protecting your family with life and disability insurance. It’s also great that you’re beginning to save for retirement in your early 30s, so you can take advantage of a nice, long time horizon to let compound interest grow your savings over the next 30-plus years.
Let’s start with disability and life insurance.
Your husband may be eligible to participate in group plans through a professional organization, union, or alumni organization. Those are great places to look first.
You can also work with an insurance broker to find rates for individual plans. These plans tend to cost more, but you may be surprised at how affordable they can be. Find an independent insurance broker who isn’t affiliated with any one insurance company so they’ll give you unbiased advice instead of pointing you toward one particular insurance provider. A nice bonus is that a broker won’t cost you a dime — they get paid by insurance companies when they sign a client up for a policy.
You and your husband need term life insurance (you don’t need anything fancy so stay away from whole life and universal life). As a rule of thumb, I generally recommend 7-10x your salary in 20-30 year term life insurance. There’s a company called LadderLife that is doing an excellent job of streamlining and simplifying this process, especially for millennials.
You don’t mention if you work, but if you do, you may get disability and life insurance coverage for yourself through your employer. If you’re a stay-at-home spouse, I recommend a term life insurance policy for you as well. It’s common for stay-at-home spouses to think they don’t need this because they don’t earn an income, but think of all the work you do that would need to be done by a paid professional if something were to happen to you (child care, housekeeping, etc.).
Next, let’s look at child care.
You’ve already done a great job by finding care that works better for your budget, but you’re looking at increased costs when your second child is born. This is a great time to reevaluate your child care arrangement again. Would going back to a daycare facility be more cost-effective for two kids? Is a nanny share an option for you? These costs will change as your children get older (usually daycare is most expensive for infants) and start school.
You can set aside up to $5,000 pre-tax in a dependent care FSA, which you can use to pay for qualified child care expenses. I recommend this to many parents because they can get the double benefit of budgeting for child care while reducing their tax bill.
Finally, let’s tackle retirement savings.
Once again, you mentioned your husband’s employer’s lack of benefits, but you’re missing an important part of the retirement-savings equation: you! I say this because when two spouses save for retirement at the same time, you’re creating double the savings opportunities.
Besides, you actually can’t have joint retirement accounts (but you can list your spouse — or anyone else — as your beneficiary on your accounts so they’ll inherit your retirement savings if you pass away).
To start, if you are eligible to contribute to a 401(k), 403(b), SIMPLE-IRA, or any other tax-advantaged retirement account through your own employer, do that now! Contribute at least enough to get an employer match. If your employer doesn’t provide this, or you’re a stay-at-home spouse, this won’t apply to you.
You both should aim to max out Roth IRAs if you qualify by contributing $5,500 per year, per person. If you’re a stay-at-home spouse, your husband can contribute to a Spousal Roth IRA, which is an account in your name that he would fund.
If you or your husband (or both) work as independent contractors and not W-2 employees, you can contribute the lesser of 25% of your incomes or $55,000 to SEP-IRAs, which are tax-advantaged accounts for people who are self-employed. You can even do this if you freelance part-time.
The cost of daycare over the next few years may make it tough for you to save as much as you’d like for retirement, but doing something is always better than doing nothing! Budget what you can for retirement savings, and when your kids start elementary school, you’ll have more money available each month to allocate toward retirement.