4 costs you can't afford to ignore before having a babyFebruary 2, 2021
- Having a baby comes with a host of expenses, and you can prepare for many of them in advance.
- Research and plan for the cost of labor, delivery, and postpartum care, including doulas and lactation consultants.
- Consider, too, the cost of childcare, as well as short- and long-term disability insurance should anything happen to you during your pregnancy.
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Before having a baby, it’s good to be aware of expenses that could come your way so you can start mentally playing through how you might handle them. Personally, I had no idea what was in store for my journey to parenthood and beyond. But as a financial planner, I can share my advice for how to get prepared.
Here are four financial items to consider, ideally prior to having a baby.
1. Plan for the unexpected
Infertility affects an estimated 15% of couples, according to UCLA Health, and it’s expensive to manage. Depending on the specifics of your situation, there may be options and fertility treatments available, including medications, surgery, IUI, and/or IVF, which can range in price from hundreds to thousands of dollars.
American Adoption estimates that the average cost of adoption is $40,000, and the average surrogacy is $75,000.
Encouragingly, employers are starting to include these benefits in their total compensation packages. Be sure to check with your human resources department for details on your employer’s plan.
Complications during and after pregnancy are more common than you might think. According to Policygenius, about 25% of pregnancies have complications. Bed rest, a slew of additional appointments, and potential pre-birth hospital stays are things that could derail a healthy pregnancy and impact you financially and emotionally.
If you’re employed, review any short-term disability coverage. It can be activated relatively quickly for pregnancy reasons. Coverage varies depending on the policy, but generally lasts a year or less.
You’ll also want to understand any maternity or paternity leave available through your employer, and what role, if any, short-term disability might play in providing that coverage. In case you need to leave for an extended period of time, you’ll want to know your state laws.
Tests are common during pregnancy, and increase with concerns about your or your baby’s health. NerdWallet offers a helpful Medical Bills 101 Digest that includes a breakdown of typical costs and questions to ask your insurance company and hospital.
Although many issues are often unplanned, there are a few things that are in your control. Prior to having a baby, the CDC recommends talking to your doctor about pre-conception healthcare, which “focuses on the parts of health that have been shown to increase the chance of having a healthy baby.”
Establishing and setting aside several thousand dollars in an emergency fund can help with expenses should any of these complications arise.
2. Get a sense of labor, delivery, and postpartum costs
Last year, The Atlantic reported that the average cost to have a baby in the US was more than $4,500 — with insurance.
Most insurance carriers offer online portals where you can get accurate cost estimates. Be sure to get a ballpark figure of what it will cost to deliver at your hospital of choice, and see if it’s in-network. Find out if the hospital offers payment programs, including zero-interest options.
Professional help can also be a wonderful thing for new and experienced parents. Services like lactation consulting should be covered at the hospital, but may not extend to your home. If you want a particular provider outside the hospital or a home visit, plan to pay out of pocket.
Other services to consider include doulas. They are non-medical professionals who provide physical and emotional support during labor, other reproductive experiences like infertility treatments and loss, and postpartum care. Most costs for a doula are out of pocket, but that may be changing as more insurance companies begin to recognize their benefits.
3. Plan for childcare expenses
Depending on where you live, childcare can be more expensive than your mortgage or in-state tuition for a four-year public college. You can get a sense of your state’s affordability by checking out this Economic Policy Institute resource.
Fortunately, there are a few tax breaks that can help with some of the cost. Provided you have work-related expenses for childcare, which allow you to work or look for work, and meet other qualifications, the Child and Dependent Care Credit can cover 20% to 35% of eligible expenses, up to $3,000 for one child and $6,000 for two or more children. The credit starts at 35% and goes down to 20% for those earning $43,000 or more, where the potential maximum credit is $600 for one child, and $1,200 for two or more children.
A Dependent Care Flexible Spending Account (FSA) is another option. It’s an employer-sponsored program that allows you to save up to $5,000 per year tax-free for qualifying childcare expenses. It’s also sheltered from Social Security and Medicare taxes, as well as most state taxes.
A potential drawback is its use-it-or-lose-it nature; money contributed to an FSA must be spent during the plan year, although some plans do offer a grace period extension. Congress has allowed employers the discretion to make changes to their plans due to the coronavirus pandemic, so be sure to ask your HR department what amendments, if any, were made. For example, Congress temporarily relaxed the carryover rule, which enables all unused Dependent Care funds from 2020 to carryover to 2021 accounts.
Generally speaking, high-income families tend to benefit more from using a Dependent Care FSA than the Child Care Tax Credit, as you can’t receive the full benefit from both. However, if you have two or more kids under 13 and spend $6,000 or more on child care, you may be able to partially benefit from both. The Dependent Care FSA uses $5,000 in expenses, and the credit counts up to $6,000, so you could take the difference, or $1,000, in the child care credit. Your tax professional can help determine what’s best for your situation.
4. Think long-term
Pregnancies can lead to other conditions that require long-term disability insurance, such as postpartum depression, cardiovascular disease, and issues related to a C-section, assuming they preclude work. It’s best to think about and plan for long-term disability insurance needs prior to trying to become pregnant, as you will likely be excluded from obtaining a policy that covers your existing pregnancy or birth complications. If you wait and apply after delivery, any complications from a previous pregnancy may be excluded on a new policy.
Additionally, you’ll want to work with an attorney to draft a will and name a guardian for your child(ren), in case something happens to you and/or your partner. You’ll also want to ensure other parts of your estate plan, including powers of attorney for both financial and healthcare decisions, are up to date and reflect your wishes. Your attorney can also help you determine if it makes sense to set up a trust.
Deciding to expand your family comes with a lengthy list of considerations and responsibilities. Taking time to plan in advance will help set your family up for the unexpected and contribute to financial success.
Anika Hedstrom, MBA, CFP, is a personal finance expert and advisor.
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