For many families, one of the most challenging decisions is whether a working parent should continue work or stay at home after a child is born. On top of the many emotional issues associated with this decision, there are important financial aspects to consider before the choice is made.

Loss of Income
To determine whether or not staying at home is feasible, make sure the remaining income will cover not only all current expenses, but also the additional expenses associated with having a new child.

Paid Leave
For women, some employers provide short-term disability insurance that covers the typical six-week recovery from pregnancy. However, more than half of the nation's workers are covered under federal laws requiring companies to save employees' jobs when they take up to 12 weeks off to handle family or medical emergencies. If a parent decides to stay at home for longer than 12 weeks, he or she may be able to receive an extended, unpaid leave of absence or negotiate for part-time work.

Retirement Savings

• 401(k)s: A 12-week unpaid leave equals a 25% salary cut for the year, which reduces the amount being invested in a 401(k) or 403(b) account.
• Pensions: Many companies require employees to work a certain number of hours in a calendar year to qualify for a pension, so your leave may affect your pension eligibility.
• Social Security: This government pension is based on a person's average earnings during a lifetime of work. The 35 years of highest wages are used to calculate the benefit, regardless of whether you worked the entire time. For caregivers who leave the work force, a zero is applied to each year of work missed, reducing the size of the monthly check during retirement.

Education Savings
With only one income to draw from and additional expenses associated with childcare, it will be much more difficult to save for college. Less expensive (think public) universities and college loans might be a reality down the road.

Insurance
For many couples, health insurance needs can be covered by one spouse's policy. However, you need to make sure it offers adequate coverage for both parents and all dependents.

Re-entering the Work Force
After spending time out of the work force, stay-at-home parents might find it difficult to find a job with a salary that matches (or exceeds) what they were making previously. Set your expectations accordingly.

Although women have made many impressive strides toward financial independence, they report having only half as much for retirement as men. Generally, because women live longer than men, they should save 12% of their gross income for retirement, rather than just 10%.

Advice for Those Considering Leaving the Work Force

• Review your employer's maternity or paternity leave policies and pension eligibility rules.
• Discuss your leave with your employer. Your company might be flexible in giving you more time off than generally allowed.
• Before the child is born, prepare a family budget that takes into account the reduced income. Don't rule out going back to work part-time.
• Contact the Social Security Administration (ssa.gov) to get an updated statement of benefits and review your status.
• Take steps to reduce the effect of a leave on your retirement income. When planning for your pregnancy, increase contributions to your 401(k) or 403(b). If you're married, consider setting up a spousal IRA, which allows your spouse to save for your retirement.
• Check your spouse's health insurance policy and confirm that you and your children are covered. Adjust life, disability and health coverage if necessary.

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This information is provided for informational purposes only. The information is intended to be generic in nature and should not be applied or relied upon in any particular situation without the advice of your tax, legal and/or your financial advisor. The views expressed may not be suitable for every situation.

Ameriprise Financial Services, Inc. Member FINRA and SIPC.