A retirement roadmap for DINKs

By Shelly Gigante
Shelly Gigante specializes in personal finance issues. Her work has appeared in a variety of publications and news websites.
Posted on Jul 11, 2018

Couples with no kids may not need to set money aside for braces or college tuition, but they may well need a bigger financial safety net to provide for their living expenses in retirement.

Indeed, DINKS (double income, no kids) have no adult children on the horizon to help with trips to the doctor, meal deliveries, or activities of daily living as needed. Thus, the surviving spouse is potentially more likely to have to pay out of pocket for support services as they age.

A recent survey by Pew Research Center found that 79 percent of adults with an aging parent who needs assistance say they or another family member provide most of the care themselves – rather than paying for help.1

Similarly, seniors with no immediate family to provide room and board during the twilight years, may move into an assisted living facility or nursing home sooner than their peers who are parents. Paying those bills for even a few extra months can take its toll on their budget.

Nationally, assisted living facilities charge about $3,600 per month, while a semi-private room in a nursing home costs closer to $6,800 monthly, according to Genworth Financial.2

“Financial priorities are very different for people with no kids,” said Elijah Kovar, a financial advisor with Great Waters Financial in Minneapolis, Minnesota. “I just spoke with an older client and her biggest concern is that she’s all alone now. If she needs a nursing home eventually, it’s all on her so she needs to make sure that her finances can cover that.”

It bears noting, of course, that not all parents get help from their kids as they age – or even want it. And, many childless couples have a robust network of family and friends upon whom they may rely. Single seniors, for example, often move in with their sibling or pick a close friend a roommate during their golden years. Others have a unique bond with a niece or nephew who would willingly step in as a caregiver.

Even so, financial advisors suggest childless couples save enough in their retirement accounts to provide for themselves, a goal that may be more attainable without the expense of summer camp and braces.

The spending trap

Indeed, during their working years, most kid-free couples have fewer financial obligations and potentially more opportunities to save.

According to the U.S. Department of Agriculture, it will cost nearly $234,000 to raise a child born in 2015.3That’s roughly $13,000 per year or $1,100 monthly for 18 years – per kid. It does not include the cost of college, which averages roughly $20,000 per year for tuition, fees and room and board at in-state public universities.4

“The way I see it, this affords DINKS the right to both spend more and save more for retirement,” said Kovar.

If they spent half of this additional $1,100 every month on toys, entertainment, sport cars, etc., he said, and invested the other half ($550) from the age of 30 until 48, they would have additional retirement savings of about $235,000 at age 48, assuming a 7 percent rate of return. If they stopped saving at the age of 48 and let their investment grow until age 70, it would amount to more than $1 million of additional retirement funds they could use to fund their medical bills, nursing home costs or any other expenses they face in the future.

“Now imagine if they invested two times that amount to compensate for the fact that the average family has at least two children,” said Kovar, noting that does not include any other savings they manage to set aside in tax-favored retirement accounts.

Kovar suggests couples who are eligible start by fully funding a Roth IRA, in addition to maxing out their workplace 401(k).

”When I sit down with people who are in or nearing retirement and don't have children, it is very common for them to say something like, ‘I'm all alone’ or, ‘this money is all I have because I have no children to ask for help,’” he said. “Investing ‘child free savings’ into a retirement account now can definitely make it a lot easier to deal with this concern at retirement.”

But that doesn’t always happen. Adults with no dependents sometimes delay decisions related to their financial future in a way that couples pushing a baby stroller don’t dare, he said. Absent any urgency to get their financial house in order, they may also be more lax with their budget or grant themselves license to live beyond their means.

“I think it [a childless lifestyle] can encourage people to spend more money on vacations, cars, and other items,” said Mike Keeler, a financial advisor with Peak Financial Solutions in Las Vegas, noting financial planning is necessary to ensure they reach their short- and long-term goals. “Paying themselves first should still be their main goal.”

To that end, he said, DINKS should be saving between 15 percent and 20 percent of their annual salary for retirement before spending money on the extras.

Estate planning

Estate planning is vital for all adults, even those who aren’t concerned about leaving an inheritance behind. Those legal documents include:

  • A living will, which clarifies your wishes for end of life medical care – i.e. whether you wish to be kept on life support or receive palliative care.
  • A healthcare proxy, also known as a medical power of attorney, appoints an individual to make healthcare decisions on your behalf if you become too ill or incapacitated to communicate your preferences yourself.
  • A durable financial power of attorney, which grants a designated individual legal authority to handle your financial affairs if you become incapacitated. That person can be your spouse, sibling, extended family member or close friend.

As always, consult a financial advisor, tax professional or estate planning attorney for help in determining how best to structure your estate.

Philanthropy

With no kids in the wings to inherit their wealth, DINKS may also want to think carefully about whom they wish to leave their money to when they’re gone. Some bequeath money to siblings, nieces or nephews, to their alma mater or to a favorite charity.

“One of the big opportunities and challenges for DINKS is trying to figure out what to do with their estate,” said Keeler. “I try to get clients to think about this earlier rather than in their 80s. I ask them what they are passionate about and if they were to give someone a big check today who would they give it to. It gets them thinking and it’s kind of fun.”

Those with $1 million or more to leave behind might consider starting a foundation to support a specific cause. “You don’t have to be Bill and Melinda Gates,” said Keeler. “Some companies these days can manage foundations cheaply. One of my clients started one that provides scholarships for at risk students at the middle school where she taught.”

Bounce the last check

Kovar notes that childless couples who are not philanthropically inclined can also potentially deploy a more aggressive portfolio withdrawal strategy during retirement that enables them to elevate their lifestyle. “If leaving a legacy or inheritance is not a priority, you want to leverage your assets to spend as much as possible without risk of running out of money,” he said. “In that case, the name of the game becomes how do you bounce the last check.”

By ensuring your living expenses are covered with guaranteed income streams, like pensions, Social Security, and annuities, he said, your withdrawal rate from taxable, tax-deferred and personal savings accounts can potentially be higher.

“Why worry about leaving an inheritance when you don’t need to,” said Kovar, noting many seniors with highly appreciated homes also turn to reverse mortgages to tap the equity in their house. “If you know all your bills are paid, you can use your savings to travel, go to shows and enjoy retirement.”

The insurance safety net

DINKS who don’t have enough money to self-insure, meaning their savings are insufficient to cover all projected living expenses out of pocket, however, should ensure their financial safety net includes adequate insurance coverage for themselves and their spouse, said Keeler.

While childless couples may feel they do not need life insurance if they don’t have kids, that’s not necessarily true. If your spouse relies on your income to pay the mortgage, or maintain their lifestyle, a life insurance policy can potentially mean they would not have to sell the house if you passed away. Life insurance policies can also be used to help pay final funeral expenses, pay off student loan debt, or, in the case of permanent life insurance coverage, build cash value that can be used during the policyholder’s lifetime to supplement living expenses.5

Long-term care planning, said Keeler, which would include resources, such as insurance, to help cover the cost of nursing homes, assisted living and home health care, is also potentially critical for childless adults. Such planning would pick up where federal health insurance leaves off. How so? Medicare, the federal health insurance program for those age 65 and older, does not cover most long-term care expenses, and Medicaid, the federal-state health insurance program for needy Americans, only provides coverage to low income individuals who are eligible. Often, that requires seniors to spend down their assets to qualify. Medicaid beneficiaries may also not get a say in which nursing home they end up in, and may not get a private room.

“For DINKS, I’d recommend looking at insurance options to help meet this need a little earlier than for couples with kids, maybe even in their mid-40s, just in case something happens that impacts their eligibility,” he said. “If you have a car accident or get diagnosed with diabetes later in life, you may not be able to get coverage, and you don’t have the safety net of being able to move into your kids’ home if you needed.”

Similarly, he said, all working adults who rely on their income should consider disability income insurance to help cover everyday expenses in the event they become too sick or injured to work for a period of time. Some of the most common causes for a disability insurance claim include arthritis, back pain, neurological problems and cardiovascular illnesses. According to the Social Security Administration, one in four 20-year-olds will become disabled before they reach retirement age.6

DINKS may need more savings to pay for support services and long-term care costs down the road, but they also have more disposable income than couples with kids. By establishing a savings plan, getting their financial house in order and ensuring they have a plan in place, childless couples can potentially meet their future financial needs without crimping their lifestyle.

“It is clearly an opportunity to save more,” said Keeler. “DINKS are in a position to save money so they can pay cash for their next car, and live nearly debt free.”

Learn more from massMutual....

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Pew Research Center, “Family Support in Graying Societies” 2015

Genworth Financial, “Cost of Care Survey,” 2016.

USDA, “Expenditures on Children by Families,” 2015.

College Board, “Trends in College Pricing,” 2016.

Access to cash values through borrowing or partial surrenders will reduce the policy’s cash value and death benefit, increase the chance the policy will lapse, and may result in a tax liability if the policy terminates before the death of the insured.

U.S. Social Security Administration, “Fact Sheet” 2017

The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own, and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.