More and more working women within 3-5 years of retirement are becoming grandmothers and are faced with one of retirement’s most challenging questions. Should they retire early or change their work status in order to be a grandma?
This can be a sticky situation with a lot of factors to consider, some of which may create heated debates and differences of opinion.
Generally speaking, a lot of grandmothers faced with this situation are close to Social Security and Medicare eligibility, which makes retirement a very real possibility. Their proximity to these entitlements, combined with the maternal instincts to both help their kids out financially – by reducing daycare costs, for instance – and a deep desire to connect and bond with a new grandchild, can in fact make the decision seem like a no-brainer.
But it’s not that easy. Oftentimes the very reasons a new grandmother may be inclined to make such a move can backfire, leaving her personally and financially frustrated, and second guessing her decision once she feels its impact.
While the tradeoffs are not easily quantified, there a several things grandmas do need to consider:
Timing The date of the baby’s birth and the grandmother’s decision to retire or adjust her work schedule usually come within a fairly tight time-frame… overlaid with lots of emotion. Many first-time parents get serious about child care a month or two before the baby is born and, while they may have decided that the mom will return to work and will need X number of days for child care, that strategy can change the instant they meet their little bundle of joy for the first time.
New Mom’s Role & Work Status It’s not uncommon for either a new mom or pop to decide late in the game that returning to work isn’t worth it. Family advocates may cheer “Hurray, for putting family first,” but where does that leave a grandma who has already put in her retirement paperwork, or who has reduced her work week from five days to three.
Even if mom does return to work, the combined stress of work, new family life, and increased expenses can cause young couples to pause within the first few months to reassess the tradeoffs. This can also be complicated by unexpected differences in the ways new mom and grandma feel about child rearing.
Simple differences, such as how you hold the bottle, nursing times, feeding frequency, baths, diaper care, and even tummy time, can add another wrinkle to the mix and quickly take the joy out of the situation, leaving grandma questioning her decision.
Health Care Costs Along the same lines, the goal of helping the kids out financially may end up costing the grandparents more. Depending on one’s age and health status, the amount a part-time grandma who is not eligible for Medicare pays in insurance premiums can easily be more than she is saving the kids. This won’t be the case for everyone, particularly married grandmothers with a working spouse, but it is an important point to consider. For example, a 61 year-old grandma will typically have a very different healthcare cost structure than one who is 64. Limiting out of pocket payments to one or two extra years may be much more tolerable than carrying those costs for three or four years (in combination with lower pay).
Social Security & Lost Savings A similar situation arises with Social Security. Claiming benefits at 62 so grandma can devote time to child care and, at the same time, bridge the loss of her income may work well in the early years, but comparing that 30% discount to full benefits at a later date can be a disconcerting number … unless that grandchild becomes a celebrity, fortune 500 CEO, or professional athlete who can support you.
At the risk of harping on the financial impact, keep in mind that grandmas with only a few years left to work are also at their peak earning years and likely saving more than ever before. For some, what they save in these final years may just be extra padding but, to others, it’s the crucial time to take less risk with their investments and at least keep pace with rising inflation. Again, a tradeoff that needs to be considered.
Additional Factors Two more considerations stand out. First, the mobility of young people and careers today. It would not be uncommon for a new parent to finally get that dream job, requiring relocation. Initially, grandma may simply agree to follow, but experience teaches that mobile kids stay mobile and another transfer may follow. Obviously this may never happen … or be less of a problem if it’s a one-time transfer only an hour or two away … but it suggests the need to ask and clarify whether the soon-to-be new parents are seeking career advancements or a physical move. It could play be a big part in a grandma’s decision.
Secondly, for grandmas still married the impact of these decisions can spill over into her own home. Will her desire to retire early mean her spouse will have to work longer than he planned? Will babysitting one or two days a week change plans you previously made as a couple? If grandpa is already retired, will a newborn in the home challenge his plans and routine? Once again, it’s important to simply ask these questions and set clear expectations so that everyone is in agreement.
Overall, it’s important that grandmas never assume it will be a walk in the park or that things will go 100% according to perceptions and plans. That makes it crucial for all parties involved to take the time to openly discuss the pros and cons of the situation and work together to make some sacrifices and come to an agreement that works for everyone.
Are you thinking about retiring to be a grandma? Need help analyzing your options and it may impact your savings and Social Security? Contact us today and put our knowledge and experience to work for you. There is no cost for an initial meeting where we can get to know more about you and discuss next steps to maximizing your retirement savings.
Are you feeling overwhelmed, confused or burdened by your various retirement savings accounts? Looking for someone to help you get things organized and on a track to help you achieve your financial goals? Contact us today and put our knowledge and experience to work for you. There is no cost for an initial meeting where we can get to know more about you and discuss next steps to taming your retirement savings hodgepodge.
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