Retirement Advice for DINKs (Dual Income No Kids)

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, your retirement strategy might be different from the "average" couple, because some of the standard rules about retirement planning do not apply.

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. That figure doesn't even consider the cost of college.

That estimate is also 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, at least considering the matter from a financial aspect. In addition, consider the fact that 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 much easier for DINKs than it is for parents. If the first commandment of retirement planning is to start early, then having as few dependents as possible is #1a.

Individuals able to start saving for retirement earlier can often capitalize on investment appreciation or interest income more than a saver starting later. Immediately investing that extra $13,750 a year, rather than 18 years from now when a child is grown, can go a lot further 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.

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).

In any case, if you've been saving an extra $13,750 per annum throughout 18 years of your prime working life, the 4% rule may not apply to you. If you want, you could 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.

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.

DINKs Can Save (and Invest) More

How much extra can you save and invest if you don't have children? Well, 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.

Now consider if both partners receive an employer match on 401(k) contributions. In 2022, the 401(k) contribution limit per individual was $20,500. In 2023, the limit is $22,500. Should the partnership be able to maximize their contribution each year (and receive an employer match), the road to retirement becomes considerably wider and smoother.

Taxes and Life Insurance

"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."

Further Considerations

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 70½ 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.