The Cradle Act would give new parents paid leave through their Social Security benefits—here's what financial advisers think

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Republicans in Congress released a new plan to give working parents paid maternity and paternity leave earlier this week, and it hinges on a slightly unexpected source of funding.

Under the Cradle Act, which was proposed by Sens. Joni Ernst (R-Iowa) and Mike Lee (R-Utah), parents could opt to receive one, two or three months of paid leave benefits in exchange for agreeing to delay their own retirement and collection of Social Security payments by double the length of the paid leave time they took.

Parents would still bear the cost of taking time off, but the bill would allow them to access some of their Social Security income early — essentially, to borrow from their future selves.


The U.S. is the only industrialized country that doesn't guarantee paid parental leave to working parents. Both Democrats and Republicans have vowed to find a solution, and this bill is only the latest in a series of proposals from legislators.

But 74 percent of voters say they want the government to require businesses to offer such leave to their employees.

Almost every industrialized country except the U.S. gives working mothers at least three months of paid maternity leave, and in most of those countries, such programs are funded through a tax. But the idea of imposing a tax or making businesses directly pay for the benefit hasn't mustered bi-partisan support before, which is why Ernst and Lee have argued that the Cradle Act, which would require neither employers or the government to pay up, could be a solution.

But having workers tap their Social Security income early and delay retirement is likely to have big effects on their entire financial lives, not just the few months they cared for their new baby, according to financial planners CNBC Make It spoke with.

Betting on the future of an overburdened system

Planners' biggest concern for parents stems from whether the Social Security fund could handle this additional need and still provide traditional benefits to those workers when they hit retirement.

The Social Security system is currently running a deficit for the first time in more than 30 years and is projected to run out of money to pay workers their full benefit amounts by 2035. Adding further withdrawals from working parents, who won't repay such sums for decades, could overburden the system and worsen funding problems.

"Regardless of whether Congress could devise a cost-neutral solution, it seems an unfair choice to present to young parents, and something of a gamble," says Sean A. Fletcher, a financial planner based in San Francisco. "If the Social Security Trust becomes defunct, they'll regret not taking the paid leave. Conversely, if they experience poor health before retirement, they may regret facing an inability to retire earlier. Most new parents already expect Social Security to begin at 70. For someone with a heart condition, six months could mean a lot." 

Waiting to tap Social Security could cause big financial problems for workers who find themselves dealing with illness, job loss, or some other hardship and have shallow savings to rely on. In such cases, many workers typically consider taking early withdrawals, but for these parents that option would not be available.

Wait to take your benefits, but start discussing retirement now

Still many planners saw this as a good thing. While the best time to begin taking Social Security varies depending on marital status and earnings, traditional guidance recommends waiting until age 70 because, for every year you delay, your benefit increases by 6-8 percent.

"If the act was written in a way that it would permanently reduce your estimated benefits, this would absolutely be a bad idea," says Jeffrey Edwards, a financial planner based in Irvine, Calif. "However, advising clients to delay filing for Social Security benefits is almost universal. If a client is unable to push filing to age 70 and there are insufficient assets to cover retirement funding until then, there's a bigger problem. If I'm discussing this provision with a client in their 30s or 40s, there should more than enough time to properly plan for a 'delayed' retirement."

Financial planner Allan Moskowitz, based out of El Cerrito, Calif., echoed Edwards' thoughts, saying the thought of delaying Social Security forces a conversation around retirement planning that is better to start in your 20s, 30s, or 40s when you're having children, then say when you're in your 50s or only five years out.

"I think this could potentially be a great idea, since it would get people thinking and planning for their retirement. A big reason many people are unprepared to retire is that they fail to plan," says Moskowitz, who adds that fewer people "would be unprepared for retirement if they had to think through some of the pros and cons of their current actions and lifestyles in the context of planning for their futures."

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