The term DINK - Dual Income, No Kids - refers to well-educated and typically high earning professional couples who have no children (DINKY describes those couple who don't have children - yet). In its most recent report, the United States Department of Agriculture (USDA) estimated that it will cost a middle-income family an inflation-adjusted $286,050 to raise a child born in 2009 from birth until age 17 - not including college costs. Because DINKs do not have the financial obligations associated with raising children, they are considered to have much larger disposable incomes. As a result, DINKs are often able to spend, save and invest in more diverse and aggressive ways than couples with children. Here are some investing considerations for dual income, no kids couples. (For more, check out Kids Or Cash: The Modern Marriage Dilemma.)
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Many DINKs have the added advantage of being able to start investing at a younger age, which means they are able to take a more aggressive approach with their investments than older couples. DINKs are often able employ aggressive investment strategies, allocating more of their money to higher-risk investments like stocks, which have the potential for significant growth, rather than focusing on lower-risk investment vehicles such as bonds and FDIC-insured certificates of deposit (CDs). Because the aim of an aggressive investment strategy is to maximize returns, these portfolios generally carry a substantial amount of risk, but can often outperform the market.(To learn more, see What Is Your Risk Tolerance?)
Purchasing real estate for investment purposes can provide a stable income stream; however, it is not without effort or expenses. Rental properties incur fixed expenses, such as for insurance, property taxes, property management services and routine maintenance, as well as variable expenses such as replacing the roof. Rental income, however, can prove to be lucrative, particular when multiple investment properties are involved. In addition, since owning investment real estate is, for tax purposes, like running a business. Many of the expenses associated with ownership provide certain tax advantages. In general, any expense that is associated with managing and maintaining the property can be deducted, including mortgage interest, insurance and depreciation.
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Depending on income level, DINKs may be able to contribute to Individual Retirement Accounts (IRAs) such as Traditional or Roth IRAs and receive certain tax benefits. Contributing the maximum amount each year to these retirement accounts, along with any employee-sponsored qualified plans such as 401(k)s, or SEPs and SIMPLEs for self-employment earnings, can build a sizable nest egg for retirement while offering tax incentives. Specific tax treatment varies with the type of plan or account, and also income level.
DINKs might also consider a variety of other retirement investments such as annuities or life insurance policies that can provide dependable income streams during the retirement years.
FSAs and HSAs
Many employers allow employees to choose to have certain expenses, including medical and dental expenses, paid for using pre-tax dollars through a Flexible Spending Account (FSA). Money in an FSA must be spent by the end of the year; any extra money will not be refunded.
Another option is the Health Savings Account. An individual or employer can contribute pre-tax dollars into an HSA. The money can be used for qualified health care expenses, and the withdrawals are tax-free.
Charitable giving is a significant source of funding for nonprofit organizations. In addition to the satisfaction that comes from helping a worthy cause, charitable giving as part of an investment strategy can reduce an individual's or couple's tax liability because tax law allows charitable contributions as itemized deductions. As the income tax bracket increases, the real cost of the charitable donation generally decrease. Limits on donations may apply, so if significant contributions are planned, it may be necessary to speak with a tax advisor. (To learn more, see Give To Charity; Slash Your Tax Payment.)
The Bottom Line
High earning professionals tend to be rather busy with work and social commitments, and may not find the time to put their money to its best use. It would be easy – yet wasteful – to let earnings simply accumulate in a bank account earning close to nothing. Well managed investments, however, can put that hard-earned money to work, earning significantly higher returns than possible through savings accounts or low-risk, low-yield investments like CDs. Working with a qualified financial adviser, such as a Certified Financial Planner (CFP) or a Registered Investment Advisor (RIA), can help DINKs manage their investments, reduce tax liability and make the most of their money. (For more, check out Finding The Right Financial Advisor.)