The third anniversary of my mom’s death just passed, and since she was a homemaker, I was particularly interested in a new study showing that America’s homemakers may be facing their own retirement crisis.
“When it comes to retirement, homemakers are extremely vulnerable,” says Catherine Collinson, Executive Director of Aegon Center for Longevity and Retirement which just issued the report, Homemakers Are Not Off the Hook. “They’re not doing enough to plan for retirement.”
But Collinson, who is also President of Transamerica Center for Retirement Studies, and I have some suggestions that might reduce their vulnerability.
It’s worth noting that this was the first retirement survey focused on homemakers that I can recall. “My scan of available research found that homemakers are almost invisible,” says Collinson. “So much of the retirement initiatives are focused on people in the workforce. Somehow, we lost focus on those who are not in the workforce either by choice or by circumstance.”
Homemakers’ Pessimism About Retirement
Aegon surveyed homemakers and found many have a bleak vision of retirement. “That was one of the most telling findings,” says Collinson. When asked for the words they associated with retirement, homemakers were more likely than workers or retirees to say words like “insecurity,” “poverty” and “ill health.”
To save for retirement, homemakers should look into setting up their own tax-sheltered Individual Retirement Retirements, known as Spousal IRAs.
Collinson cites two reasons for this pessimism.
“In some ways, homemakers never retire,” she says. “The unpaid work they do in their household doesn’t come with a set retirement age. There will always be a need to manage the household.”
After the kids grow up, they may rely on their homemaker moms to help care for the grandkids.
The other reason: very few are preparing for retirement.
A Lack of Retirement Preparation
According to Aegon’s survey, just 44 percent of homemakers are saving for retirement. And most are relying on their employed spouses or partners.
That’s a mistake, Collinson says. “A change in their circumstances — like a divorce, separation or loss of a spouse or partner — could make them particularly vulnerable,” she notes.
She’s right. Homemakers need to be well aware of their family’s financials and prospects for retirement. “The first thing a homemaker needs to do is to get involved with the long-range planning of family finances to know exactly where the family stands,” says Collinson. “Then, working with a spouse or partner, she can develop a long-term financial plan.”
That means, whenever possible, homemakers should take steps to help secure their own retirement.
The Basics on Retirement Saving and Social Security
The excellent website from WISER (Women’s Institute for a Secure Retirement) is a great place for homemakers to familiarize themselves with the basics about retirement saving and investing, Social Security and pensions.
To save for their retirement, homemakers should look into setting up their own tax-sheltered Individual Retirement Accounts, known as Spousal IRAs. These accounts can be funded from the homemaker’s current, taxable savings or from her spouse or partner.
The Spousal IRA rules are, sadly, tricky. But essentially if a homemaker files a joint return, she may be able to set up in her own name either a traditional or Roth Spousal IRA subject to the same annual contribution limits, income limits and catch-up rules as standard IRAs (for 2015, the maximum investment is $5,500, $6,500 if you’re 50 or older).
The couple just needs to have earned income that’s at least as much as the IRA contribution. If the working spouse isn’t in an employer-sponsored retirement plan, the Spousal IRA contributions will be tax-deductible.
“In the ideal scenario, 100 percent of homemakers should be saving for retirement,” says Collinson.
Homemakers will only receive their own Social Security retirement benefits if they’ve worked for pay for the equivalent of ten years.
Otherwise, if they’re married and their spouses are collecting Social Security, the homemakers can file for spousal benefits starting at age 62 (equal to half the spouse’s full retirement benefit).
How Firms and the Government Could Help Homemakers
Collinson thinks employers and the government could pitch in to help homemakers have secure retirements.
More private firms and nonprofits could offer flexible work arrangements and retirement benefits for part-time workers, she says. “Currently, only about half of employers offering retirement benefits extend them to part-time workers,” notes Collinson.
Employers could also do more to involve homemaker spouses or partners of employees in retirement-planning seminars they offer.
And Collinson’s radical policy recommendation: Let homemakers accrue Social Security benefits for their years raising families. “Homemakers are doing an extraordinary amount of work, putting in time and a tremendous labor of love,” she says. “It’s unpaid and it’s priceless.”
Last week, Rep. Nita Lowey (D-N.Y.) introduced legislation along similar lines. Her bill would provide a Social Security credit to unpaid family caregivers.
I asked Collinson why she thought so few homemakers are planning for retirement.
“My interpretation of the data and the work we’ve done with women over years is that the lack of engagement in financial planning appears to be a hangover from prior generations in which the husband was in charge of family finances and the wife wasn’t involved,” she says. “It’s time to change that.”