Do The Math
Insights from Lucas Casarez, Certified Financail Planner ™
It's not unusual to hear a working parent lament the high cost of childcare, and some even consider quitting their jobs to care for their children full-time explaining that "It doesn't make sense for me to work if all my money goes for daycare." But that's probably not true; even if the cost of daycare is equivalent to 50% of your family's take-home pay, it's short-sighted to opt out of the workforce for even a few years if you consider the situation from a purely financial perspective. If you're looking for a reason to quit your job, and want to blame it on your paycheck, this story isn't for you.
Consider the Big Picture
Even if 50% of your family's take-home pay is needed to cover the cost of childcare, don't forget that your job probably provides other compensation; things like social security contributions, 401(k) contributions and possibly matches, insurance benefits, stock purchase benefits, and training, not to mention the fact that you're increasing your experience and theoretically becoming more valuable and employable every year. If you opt out of the job market for a few years, you may also miss out on pay increases and possible promotions.
Long-term Impact (It may be greater than you think)
Here's one, overly simplified, example. Assume that a working parent earns* $50K/year, contributes to a 401(k) plan, receives a 3% 401(k) employer match, and receives 3% pay increases each year. A quick (and incomplete) calculation may lead you to think that a decision to take a five year "break" from work would "cost" $250K (i.e. $50K/year x 5 years). But given the time value of money, plus the cost in terms of lost salary increases and benefits, the actual cost, by the end of a 35-year career, is more like $664K. And maybe that's OK. But if it's not, be sure you're doing the big picture math!
Chances are that each year you spend away from your job will reduce your earnings (and savings) for the rest of your career. When you consider the cost of taking a break from your career, be sure to do the math and take the long-term view.
* For the sake of simplicity we've ignored taxes, all non-401(k) benefits (e.g. health and other insurance assistance, stock savings plans, bonuses and/or profit sharing, educational benefits, and professional training, and promotions). If you receive these benefits, a career break will cost you even more.
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