Retirement advice tends to focus on families with children, including balancing the costs of raising kids and putting them through college while saving enough for retirement. But not every couple has kids. Dual-income, no kids (DINK) households have two incomes and no children. Your retirement strategy might differ from the average couple if you're a DINK because some of the standard rules about retirement planning don't apply.
Key Takeaways
- "Dual income, no kids" is a phrase used to describe households with two incomes and no children.
- DINKs tend to have higher disposable incomes, in part because they don't have the expenses associated with children.
- 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.
- You may have more tax liability if you don't have any kids so you may have to find tax-efficient investments.
The Cost of Raising a Child
Parents tend to underestimate the cost of raising a child. In a 2022 report, Brookings estimated the cost of raising a child born in 2015 through the age of 17 was $310,605 for necessities, excluding college.
This figure was based on a previous calculation released by the U.S. Department of Agriculture (USDA), which estimated that the cost of raising a child for a middle-income married couple family with two children was $233,610 in 2015.
Brookings adjusted the USDA's figure for inflation using an annual rate of 2.23% between 2015 and 2020. The institute used a rate of inflation of 4% beginning with 2021.
This puts extra money into your pocket if you're a DINK. It translates to about $18,270 per year or $310,605 ÷ 17: the total cost divided by the number of years.
What to Do With That Extra Money
What could you do with more than $18,000 a year that you'd save by not having kids? You may want to consider the following:
- Saving for and taking a vacation
- Paying down your liabilities, including your mortgage or credit card debt
- Making a major purchase, such as that big-screen TV you've been eyeing
...or you could save for retirement.
Retirement planning is much easier for DINKs than it is for parents. Immediately investing that money can go a long way toward growing your nest egg. Another thing to consider about saving some or all of that extra money for retirement is that it can give you some generous tax advantages. You'll save on your tax bill if you:
- Put additional money into your 401(k), which uses pre-tax dollars and reduces your taxable income
- Defer tax payments by investing in an individual retirement account (IRA) that incurs taxes when you make withdrawals
- Take advantage of catch-up contributions if you've reached the age of 50
- Take a double tax deduction by opening a spousal IRA if you qualify
The 4% Rule for Retirement
One popular financial rule of thumb is 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%.
The 4% rule says that 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 that you're 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%, 5%, or even more might be appropriate for investors who are positioned in securities with significantly higher volatility and potentially higher rates of return (RoR).
The 4% rule may not apply to you if you've been saving an extra $18,270 each year throughout 18 years of your prime working life. You could withdraw more than 4% and spend a little more extravagantly each year of your retirement or you might even retire earlier if you've been diligent.
Drawing down 3% of a $1.5 million retirement account is the equivalent of drawing down 4% of a $1.125 million 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? Grossly simplifying all variables, let's assume that a childless worker can indeed save an additional $18,270 per year for 17 years. And let's start at 25, a reasonable age at which to have one's first child.
A 4.5% rate of return compounded annually lets the diligent childless person enjoy an additional $490,642 that a parent doesn't have. Now let's assume that money remains invested at 4.5% with no further contributions through age 65. Your balance grows to $1,350,328.
A couple who doesn't have children increases their capacity to expand their retirement fund. Consider that both partners receive an employer match on 401(k) contributions. The 401(k) contribution limit per individual in 2023 was $22,500. It increased to $23,000 in 2024. The road to retirement becomes considerably wider and smoother should the partnership be able to maximize its contribution each year and receive an employer match.
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 necessary. "The surviving spouse would go back to workat some point and would still have no dependents to provide for, so this number is much less than the typical family."
Special Considerations
Much of the same retirement advice intended for parents still applies to couples who don't plan to parent children. Defer Social Security payments until age 70½ and be strategic about when and how to use spousal benefits. Don't cash out your 401(k) early because this would result in a 10% penalty.
Refinance your mortgage at a more attractive rate should the opportunity arise. That should be relatively easy given that you and your spouse presumably have a higher combined credit score due to having a greater capability for making mortgage payments, thanks to two incomes and no kids.
Can I Retire Earlier Without Kids?
Every individual's financial situation is different. Living without children can dramatically reduce monthly expenses, allowing a couple to put more money aside for retirement earlier. However, raising children who have successful careers may allow a parent to step aside from work if they can financially rely on their children.
What Is the Financial Downside of Being DINKs?
DINKs often don't get the favorable tax benefits that other taxpayers their age who have children receive. Consider child tax credits or the ability to claim additional dependents on one's tax return. But individuals with children often have higher living expenses due to more humans to support. The IRS rewards the sacrifice with tax incentives and help.
How Much Money Do DINKs Need to Retire?
Couples without children may need less money than their counterparts because they don't have to financially support other individuals to financially support, even in retirement. But DINKs may have greater opportunity to travel or move due to not having a family to support so they may have higher and potentially unhealthier spending habits.
The Bottom Line
Not everything is quantifiable. 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. However, not having children isn't always a personal decision nor one that's based on financial security.
Retirement advice looks different for dual-income households without children. The lack of cost associated with raising children can put families on an easier path to retirement.
