Here is another question I was asked after the Planning with Purpose series, and one I get asked a lot.
How should a couple plan where one has taken a step back to raise a family?
This question has come up quite a bit on email and in the Facebook group, so I want to give it due attention. This is obviously a pretty common theme: one partner, usually the woman, takes time off or reduces hours drastically, to raise a family. Clearly this has a detrimental effect on her personal retirement provision.
She’ll get NI credit for state pension of course while she’s receiving child benefit and not working, or if she’s working part time. But if she’s is paying a proportion of her (now reduced) earnings into a pension, she’ll be worse off. DB scheme benefits are usually accrued pro-rata, so she’s worse off there.
And the chances are that non-pension saving and investing will go down too, as the household income will be reduced, and you’ll probably have to reduce other spending too. I always say that if you wait till you can afford to have kids, you’ll never do it, so don’t let this put you off!
The way to navigate through it is of course to plan where you can. You should be able to quantify the impact to a large extent. What will be the pension accrual if the mother takes five years of part time work, versus full-time?
How much less will you save if you drop from £500pm savings to £100pm for five years? Can you make up for ‘lost’ time afterwards, or really push hard with savings before you have kids to get ahead? But what if you’ve gone through this stage without really thinking about it, and now you’re all “uh-oh – how do get back on track?”
Well first you need to know where you are now. Look back at the earlier chapters in this book about planning and how to take stock of where you are. There’s zero benefit to lamenting the loss of wealth-building time, so let’s look forward. Chances are, like most of us who decide to really get serious, you’ll need to push things pretty hard and maximise the savings rate, so look for what you can do there.
I would focus on accruing wealth to the partner who has sacrificed that to raise the kids. I’m doing that for my own wife at the moment – piling money into her pension so she has her own provision in her own name.
There’s not much you can do for workplace pensions in this regard, but any personal savings can be directed to this partner at least for a while. It might be that it’s not easy to think big-picture. You have a lot going on with young kids, so go easy on yourself and determine what you can do NOW, then revisit in a few months to dial it up.
Leave a Reply