Taking time off from the workforce to take care of children can put a serious dent in workers’ long-term retirement savings.
That was one of the central points that Michael Madowitz, an economist with the Center for American Progress, made as the keynote speaker Monday at Pensions & Investments' 2021 Defined Contribution Spring Virtual Series.
A 29-year-old woman earning $44,000 who decides to take two years off for raising a child would not simply lose $88,000 for the two years she took off, he said. Using an interactive calculator, Mr. Madowitz showed that the total income loss would in fact be $302,809, a calculation that factored in lost wage growth and lost retirement assets over the woman's entire working life.
One way to mitigate the loss would be to delay having and caring for a child, he said. If, for example, the woman postponed caregiving for five years, her loss would fall to $270,287, according to the interactive calculator that Mr. Madowitz developed for the Center for American Progress.
"The more that you can put off paying this cost, the less the long-term financial hit is for you," he said.
The blow to men for caregiving was even more pronounced. If a 29-year-old man earning $44,000 were to take two years off to take care of a child, his total income loss would be $361,653, or 19% higher than a woman of the same age, according to the calculator.
For men, "there's a bigger financial penalty for taking time off to take care of kids," Mr. Madowitz said.