For some, nothing is more vital to the human experience than having children. Those people see it as almost a sacred duty – to give their parents grandchildren, to propagate the species, to savor the indescribable joy of parenting.

Then there are the rest of us, a small minority to be sure, who think that diaper-changing and infantile screaming are respectively the most unpleasant task and sound imaginable. From that point of view, every dollar spent raising offspring would be better spent elsewhere. For those entrenched in the latter category, or younger ones thinking of joining their ranks, some of the standard rules about retirement planning need not apply.

A Pricey Venture

The United States Department of Agriculture estimates it costs $241,080 to raise a child to the age of 18. While that figure is more the result of an exercise in governmental public relations than a scientific attempt to calculate the exact cost of child-rearing, it’s still large enough to reinforce the belief of the voluntarily childless that they made the right decision. And those are the expenditures for just one kid. Granted, you can use the same bassinet and toys for multiple children, but should you plan to reproduce the 2.3 times necessary to stave off population decline, it seems as though the average person might as well regard affluence as mathematically incompatible with raising a family. (Also, that $241,080 number excludes college.)

So, what could you do with the extra $14,000 a year that might otherwise have gone to everything from mittens to Pablum to violin lessons?

For DINKs – if you need an acronym refresher, that’s double income, no kids – retirement planning isn’t moderately easier than it is for parents. It’s exponentially easier. If the first commandment of retirement planning is “start early,” then “have as few dependents as possible” is 1A.

One popular financial rule of thumb says that actuarial trends, cost-of-living expenses and per capita income data can be distilled into a single convenient number – 4% – for retirement planning purposes. According to the 4% Rule, this is the percentage you ought to be able to withdraw from your retirement fund every year without fear of running out of money. It presumes you’re leaving the workforce at the traditional retirement age and thus require a nest egg totaling 25 times your annual expenses.

Spend More, Retire Early?

If you’ve been socking away an extra $14,000 per annum throughout 18 years of your prime working life, the money that otherwise would have been spent on children, the conclusion is clear: If you want, you could either withdraw more than 4% and spend a little more extravagantly each year of your retirement, or – and this warrants a dramatic pause punctuated by dashes – retire earlier. Drawing down 3% of a $1.5 million retirement account is the equivalent of drawing down 4% of a $1,125,000 retirement account. Spend your working years amassing the $375,000 difference, and you could conceivably retire eight years earlier. Three percent, by the way, is more than just the number that happens to fit the equation. It’s recognized as the threshold under which, historically, you should never need to worry about withdrawing money unsustainably. Never has there been a 50-year period in which a 3% withdrawal rate would have resulted in a retiree completely running out of principal.

The 4% Rule might make for good theory, but is it valid in the real world? Bill Bengen, the certified financial planner who popularized the rule in the early 1990s, acknowledges that 4.5% or 5%, or even more, might be appropriate for investors positioned in securities with significantly higher volatility and thus potential higher rates of return. An alternative interpretation is that, if you want to remain invested in conservative securities, one possible way to raise your annual drawdown percentage is to start with a greater margin of error.

Grossly simplifying all the different variables, let’s assume that a childless worker can indeed save an additional $14,000 per year for 18 years. And let’s start at 25, a reasonable age at which to have one’s first child. With a 4.5% rate of return, compounded annually, the diligent childless person gets to enjoy an additional $412,616 that a parent doesn’t. Further assume that that money now remains invested at 4.5% with no further contributions through age 65, and that money grows to $1,030,908, a nice pot with which to begin the period of one’s life aptly referred to as the golden years.

When a couple opts not to multiply, that couple has increased its capacity to grow its retirement fund. One fewer partner at home with the kids means one more partner in the workforce. Should both partners receive an employer match on 401(k) contributions, up to a maximum of 25% of each spouse’s salary and $17,500 annually, the road to retirement becomes considerably wider and smoother.

For couples who’ve committed to selfishly putting their own interests ahead of those of hypothetical, nonexistent offspring, much of the same retirement advice intended for parents still applies. Take Social Security at age 70 and be strategic about when and how to use spousal benefits. Don’t cash out your 401(k) early, as this would result in a 10% penalty. Should the opportunity arise, refinance your house along the way at a more attractive rate. That should be relatively easy, given that you and your spouse presumably have a higher combined credit score, as a result of having a greater capability for making mortgage payments, thanks to two incomes and no kids.

The Bottom Line

Not everything is quantifiable, and parents would be the first to argue the point. The psychological rewards that go with seeing one’s child graduate from a service academy, raise a family of his or her own or even just grow up without ever getting arrested are difficult to put a dollar figure on. But people who’ve looked at the costs and benefits of raising kids, and have decided that the former outweigh the latter, will find that forgoing those intangibles will place them on an easier path to retirement.

Related Articles
  1. Retirement

    5 Ways To Fund Your Retirement

    Generating income without going to work tends to be a murky concept. Find out how it works.
  2. Retirement

    Top 5 Critical Retirement Plan Mistakes To Avoid

    These five common retirement mistakes can get you into financial trouble at a point when you most need stability.
  3. Options & Futures

    Retirement Savings Tips For 35- To 44-Year-Olds

    Learn how the "sandwich generation" can save for retirement while taking care of their kids and parents.
  4. Retirement

    Simple Ways To Save In Retirement

    Balance saving and spending in your golden years with these simple tips.
  5. Retirement

    Retirement Saving Tips For 65-Year-Olds And Over

    Find out how to save smarter after 65.
  6. Retirement

    Retirement Planning In A Changing World

    Retiring at the age of 65 is quickly becoming a thing of the past. So, what is happening to make this change?
  7. Taxes

    Retirement Savings: Tax-Deferred Or Tax-Exempt?

    There advantages and disadvantages to both types of savings accounts. Find out which one is right for you.
  8. Savings

    Why Boomers' Retirement Is Different From Their Parents

    Many retirement strategies that worked for previous generations are no longer viable. Find out the best ways to get the nest egg you need now.
  9. Savings

    The Spend-Every-Penny Retirement Plan

    If your goal is to enjoy every cent you've worked so hard to save, here are some tips on how to spend it all without running out.
  10. Options & Futures

    Retirement Savings Tips For 25- To 34-Year-Olds

    Keep saving when mortgages, marriages and debt demand your attention.
RELATED TERMS
  1. Dynamic Updating

    A method of determining how much to withdraw from retirement ...
  2. Possibility Of Failure (POF) Rates

    The likelihood that a retiree will run out of money prematurely ...
  3. Safe Withdrawal Rate (SWR) Method

    A method to determine how much retirees can withdraw from their ...
  4. Qualified Longevity Annuity Contract

    A Qualified Longevity Annuity Contract (QLAC) is a deferred annuity ...
  5. Mandatory Distribution

    The amount an individual must withdraw from certain types of ...
  6. Auto Enrollment Plan

    An employer’s decision to sign employees up to have a percentage ...
RELATED FAQS
  1. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>
  2. Are spousal Social Security benefits retroactive?

    Spousal Social Security benefits are retroactive. These benefits are quite complicated, and anyone in this type of situation ... Read Full Answer >>
  3. Why are IRA, Roth IRAs and 401(k) contributions limited?

    Contributions to IRA, Roth IRA, 401(k) and other retirement savings plans are limited by the IRS to prevent the very wealthy ... Read Full Answer >>
  4. How do you calculate penalties on an IRA or Roth IRA early withdrawal?

    With a few exceptions, early withdrawals from traditional or Roth IRAs generally incur a tax penalty equal to 10% of the ... Read Full Answer >>
  5. What is the Social Security administration responsible for?

    The main responsibility of the U.S. Social Security Administration, or SSA, is overseeing the country's Social Security program. ... Read Full Answer >>
  6. What are Social Security spousal benefits?

    Social Security spousal benefits are partial retirement or disability benefits granted to the spouses of qualifying taxpayers.  Qualifying ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!