Retirement advice tends to focus on families, including how to balance the costs of raising kids and putting them through college, while still managing to save enough for your retirement. But of course, not every couple has kids. As the name suggests, dual-income, no kids (DINK) households have two incomes and no children. If you're a DINK, different retirement advice applies.
For some, nothing is more vital to the human experience than having children. These people see it as almost a sacred duty to give their parents grandchildren, to propagate the species, or to savor the indescribable joy of parenting.
Then there are the others—a small minority, to be sure—who can't have children or can't imagine trying. 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 do not apply.
- Dual income, no kids is a slang phrase for households with two incomes and no children.
- DINKs tend to have higher disposable incomes because they don't have the expenses associated with kids.
- DINKs may be able to spend more than the recommended 4% during retirement or retire earlier because they have more money to save and invest.
- Be sure to take advantage of employer-sponsored retirement plans if both of you have access to them.
- You may find yourself with more tax liability if you don't have any kids, which means you may have to find tax-efficient investments.
Common Retirement Advice That DINKs Can Ignore
The Cost of Raising a Child
Parents tend to underestimate the cost of raising a child. The U.S. Department of Agriculture (USDA) estimates that parents can expect to spend $233,610 for food, shelter, and other necessities to raise a child through age 17. And that doesn't even consider the cost of college.
That figure is more the result of an exercise in governmental public relations (PR) than a scientific attempt to calculate the exact cost of child-rearing. Still, it's 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 2.1 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.
What to Do With That Extra Money
So, what could you do with the extra nearly $13,750 a year that might have otherwise gone to everything from mittens and Pablum to violin lessons?
Retirement planning is not just moderately easier for DINKs than it is for parents. Rather, it is exponentially easier. If the first commandment of retirement planning is to start early, then having as few dependents as possible is #1a.
As Bob Maloney of Squam Lakes Financial Advisors in Holderness, New Hampshire puts it: "For every dollar spent on children's education, retirement planning is hurt proportionately."
That extra $13,750 a year can go a long way toward growing your nest egg.
The 4% Rule for Retirement
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 for retirement planning purposes. That number is 4%.
According to the 4% rule, this is the percentage you should be able to withdraw from your retirement fund every year without fear of running out of money. It presumes you are leaving the workforce at the traditional retirement age (65 or 66), and thus require a nest egg totaling 25 times your annual expenses.
Since you have no kids, consider paying off any high-interest debt that you may have as you plan and save for retirement.
Spend More or Retire Early?
If you have been socking away an extra $13,750 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 if you've been really diligent, you can even retire earlier.
DINKs Can Ignore That 4% Rule
Drawing down 3% of a $1.5 million retirement account is the equivalent of drawing down 4% of a $1.125 million retirement account. Spend your working years amassing the $375,000 difference, and you could conceivably retire eight years earlier.
The 4% rule might make for a good theory, but is it valid in the real world? Bill Bengen, the certified financial planner (CFP) 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 potentially higher rates of return (RoR).
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.
DINKs Can Save (and Invest) More
Grossly simplifying all the different variables, let us assume that a childless worker can indeed save an additional $13,750 per year for 18 years. And let us 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 $393,536 that a parent doesn't. Further, assume that money now remains invested at 4.5% with no further contributions through age 65, that money grows to $1,036,438. That's 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 increases its capacity to expand its retirement fund. One less partner at home with the kids means one more partner in the workforce.
If both partners receive an employer match on 401(k) contributions, up to a maximum of 25% of each spouse's salary on a contribution of up to $19,500 annually in 2021 ($20,500 in 2022), the road to retirement becomes considerably wider and smoother.
Taxes and Other Considerations
"A word of caution would probably be about their tax situation," says investment consultant Dominique J. Henderson Sr., owner of DJH Capital Management LLC in DeSoto, Texas. "A typical couple without kids will have a higher tax liability and would, therefore, need to find more tax-efficient ways of investing."
He also points out that less life insurance will likely be needed. "The surviving spouse would go back to work at some point and would still have no dependents to provide for, so this number is much less than the typical family."
Some Advice Still Applies
For couples who have committed to selfishly putting their interests ahead of those of hypothetical, nonexistent offspring, much of the same retirement advice intended for parents still applies.
Defer Social Security payments until age 70 and be strategic about when and how to use spousal benefits. Do not cash out your 401(k) early, as this would result in a 10% penalty.
Should the opportunity arise, refinance your mortgage 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 college, raise a family of their own, or even just grow up without ever getting arrested are difficult to put a dollar figure on.
But people who have 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.