There's a reason parents tend to struggle to save for retirement -- their kids. Raising children costs money, especially if you need to pay someone to watch them so you can work.
Care.com reports that it currently costs an average of $736 a week to hire a nanny to watch your kids and $284 a week to put your children into day care. A weekly babysitter for those after-school hours costs $179 on average.
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In addition to child care costs, there are expenses in the form of healthcare, food, clothing, and school supplies. And let's not forgot those extracurricular activities. The cost of dance lessons and baseball team uniforms can really add up.
As such, sometimes, parents might feel like they have no choice but to hit pause on their retirement plan contributions for a period of time. But if you fail to fund your IRA or 401(k) for a decade while you're deep in the throes of raising kids, you'll risk shorting yourself on retirement income.
Why you can't afford to neglect your retirement savings
Maybe you were able stick $300 a month into an IRA or 401(k) plan for most of your 20s, but you're now pausing those contributions in your 30s to cope with the many expenses associated with raising kids. You might think it's no big deal, and you'll simply play catch-up in your 40s, when, ideally, your child care costs will shrink. But skipping out on retirement plan contributions for a decade might really hurt you in the long run.
Let's say your retirement savings are invested heavily in stocks, thereby generating an average annual 8% return, which is a few percentage points below the market's average. Let's also say you also save $300 a month between ages 22 and 32, hit pause on your savings for a decade, and then resume your $300 monthly contributions between ages 42 and 67. In that case, you'll end up with a nest egg worth $620,000.
But without pausing those $300 monthly contributions for 10 years, you'll end up with a nest egg worth almost $1.4 million, assuming that same 8% average annual return. That's a huge difference. In fact, in this example, keeping up with your monthly contributions rather than pausing them means retiring with more than twice as much money.
So how do you keep up with retirement plan contributions when you're grappling with so many child care costs? First, get yourself on a strict budget and limit discretionary spending when your child care costs are at their highest.
You might be spending hundreds of dollars on child care per week at present, but once your kids are old enough to attend school, that cost could shrink. So you may need to just make some sacrifices until you get to that point.
You might also try getting a side hustle to keep funding your IRA or 401(k) at a time when your kids are costing you a lot of money. Granted, finding the time for a second job isn't easy, but if you can arrange a work-from-home gig, that might make it more feasible.
Or, you might be able to work during your commute if you take a bus or train to work. If you're hired to write product reviews, for example, you can do them on a laptop, thereby making money during your commute instead of just sitting in traffic waiting to get home to your kids.
It's easy to see why parents might have no choice but to hit pause on retirement plan contributions for a period of time. But doing so could leave you short on income for your senior years, so do what you can to keep up those contributions, even at a time when they're difficult to make.
