The Breadwinner

The Breadwinner

March 18, 2024

Division of labor, an economist would call it. Staying home with the kids, most of us might say. Homemaker, a traditional term for it. Home engineer, perhaps a more complimentary way to say it.

No matter what you call it, an interesting scenario emerges. One spouse works and earns income–the other creates tangible and intangible value for the family that is tough to measure in dollar signs. The decision to do it, stop it, continue it is such a dynamic, multivariable equation. The decision can revolve around caring for kids, caring for parents, caring for yourself, or any other number of reasons. In the case of young parents, you probably save money by not paying (as much) for childcare, which is measurable. You get to raise your kids more instead of a stranger, which is almost impossible to measure. You might be giving up not just your retirement match and health insurance, but also a social group you literally depend on to help define who you are. How many dollars is that worth?

Therein lies the challenge: how do we reconcile the tradeoff between the economic and the emotional? The human mind struggles to quantify these kinds of tradeoffs. And meanwhile, the switching cost can be high–you might not get your old job back if you leave and realize the superdad lifestyle isn’t for you.

For some of us, the decision has come and gone–it may be our kids who grapple with these same choices now. But interestingly, people are making different decisions than they used to.

If you were born in the sixties or seventies, only one of your parents probably worked. Today it is the opposite–most families are dual income.

I have a lot of conversations with clients who are past this stage and lament that the younger generation has it hard–groceries cost more, houses are incredibly expensive, and childcare is outrageous. Younger generations seem to agree–they are voting with their choice to both work. And while that choice may be partially driven by an ever-rising standard of living more than the same lifestyle being more expensive today, some things really do cost more.

Homes really are comparatively expensive today, partially due to demographic trends like millennials entering the market while many baby boomers attempt to age in place rather than find senior living arrangements. The Guardian has a great article showcasing how relative prices have changed over time. In the nineties, the average price of a single family home hovered around three times median household income. As of 2022, the most recent data available, the average single family home price was 5.3 times more than median household income. And that is despite most families being dual income today. You can hardly blame families for feeling like both spouses need to work.

All that to say, it is tougher than ever to make the choice of being a single income family.

Plus there is the sunk cost of everything that went into your career. The years working up the totem pole, the education you put in (and the often accompanied student loans), and the relationships you may have cultivated. Giving that up either permanently or temporarily is not something done lightly. And financially, it does concentrate your risk of losing the family income if the breadwinner loses their job unexpectedly.

For clients or children of clients embracing the single-family income lifestyle, it becomes even more important to have a financial plan.

Emergency savings need to be present and reflect the uncertainties of a single income. Retirement savings might not be enough from simply maxing out the working spouse’s 401(k) if you want a similar lifestyle later in life. Life insurance and disability insurance become even more important to get right from an income replacement perspective. Estate planning and tax efficiency planning, while not necessarily more important for single or dual income households, are still key parts of the equation.

There are also opportunities from this! Case in point: a few of my clients decided to pause work to care for aging parents or due to their own temporary health issues (it isn’t always child related, after all). Income dropped dramatically, creating all kinds of planning opportunities. Some qualified for subsidized health insurance, saving them tens of thousands of dollars in health insurance premiums.

For others, we realized it made sense to complete Roth conversions, which allowed them to pay the income tax in the lowest tax brackets before they resumed working a couple years later. We did something similar with another couple around their capital gains, deliberately realizing long term capital gains in their taxable investment accounts at a 0% tax rate instead of their typical 23.8% rate while they were both working.

For some, we were also able to do normal Roth contributions because their taxable income dropped low enough to benefit from making contributions (where normally they would be phased out due to income limits).

Life changes like losing an income, even temporarily, are challenging. They can make you feel worry, guilt, and uncertainty about the future. But they can also trigger huge relief from leaving a stressful job, save marriages, and yes, even put you financially ahead sometimes. As someone who has lived and breathed that decision making process myself, I can attest it isn’t easy. But like any good financial plan, it comes down to what is right for you. It doesn’t matter what your friend and her husband decided to do for their family, or what your uncle thinks you “ought” to do, or what so and so’s mom from dance class said. Just like it doesn’t matter how much everyone else spends in retirement, it doesn’t matter if everyone else is working or not.

You can hear their perspective and even possibly take their advice, but ultimately you have to live your life the way it makes sense for you…and design your financial plan accordingly.

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