4 Financial Tips for DINKS (Dual Income No Kids) – The White Coat Investor – Investing & Personal Finance for Doctors

[Editor’s Note: I am often asked for a post about people in unique financial situations, one of which is the classic Dual Income No Kids (DINKs). Obviously I have one fire pole too many in my house to qualify, so we decided to run this guest post from Kyle, the blogger behind Financial Wolves — a blog focused on making money through side hustles and real estate. We have no financial relationship. Enjoy the post. Or hate it. Either one is fine, but let us know in the comments which it was!]

The Dual Income No Kids (DINK) lifestyle has become more popular in recent years. DINK refers to a household with two incomes but no children. Personally, I’m a DINK that has been this way for about 7 years now. I know we will not be a “forever” DINK as we plan to expand our family. My wife and I both have careers in the service professions and make pretty good money. We both graduated with the typical student loan stories. We’ve extinguished a ton of student loan debt being DINKs and are now focused on direct real estate investing to provide cash flow and capital appreciation. 

4 Financial Considerations for DINKS

A DINKS lifestyle with more disposable income has numerous benefits, but it also has financial challenges.

#1 Spending vs Investing

It’s easy to fall into the trap of spending too much money, especially if there are none of the financial obligations that come with providing for a family. DINKS often note that they are tempted to indulge in a lavish lifestyle of expensive consumer goods resulting in higher monthly expenses. 

For my wife and I, we have the tendency to spend a ton of our income on travel. We’ve explored over 10 different countries in the past two and a half years. We could have used that money to buy another investment property. But, to be honest, it’s the only indulgence that makes a real dent in our financial planning. My wife and I believe it’s worth it, too. If we had to do it all over again, we absolutely would. 

Having financial freedom and being able to spend as you wish sounds great. There is nothing easier than spending an extra $15,000+ a year, right? It is all about opportunity cost when it comes to allocating your cash flow. If you opt to invest $15,000 per year instead of spending it, in 10 years you will have $272,000 assuming a rate of return of 8%. While $272,000 might not be enough to retire, it’s cumulative to your investing goals. What if we expand that out to 20 years with the same assumptions? That $15,000 now becomes $842,000. It’s about making the right decisions today that develop investing habits for the future. 

For me, I’m investing in my future primarily through real estate investing. My goal is a six-figure income from cash flow along with an equity nest egg in the underlying properties. It appears I’ll need to save at a rate of 35% of my personal income (does not include my wife’s) to reach my goal. Real estate is straightforward. It’s easy for me to understand. If someone calls and says they need a repair on a leaky faucet, I understand what that means. If real estate isn’t for you, consider following the index fund path by opening retirement accounts like a backdoor Roth IRA and contributing to tax-deferred retirement accounts regularly. Ether way, you’ll need to continually build your nest egg with regular contributions. 

Carefully managing a dual-income can allow you the financial freedom to pursue your passions — maybe it’s working remotely, slow travel, or even redesigning your career path and starting something new. The possibilities are endless, but only if you plan in advance and follow a good saving and investing plan.

#2 Estate Planning

One of the biggest challenges for DINKS is trying to decide how you will pass on your assets to the people and causes that you care about — siblings, friends, extended family, a charity, etc. One option is to create a charitable remainder trust. This trust allows the couple to live off their assets until death. Then, whatever is left in the trust will be distributed to charity. This is likely the best option as it provides the ability to donate while keeping advisory costs low. 

If you have furry-friends, ensure to make plans for their future as well. Consider who will take care of your pets if something happens to you. You can set up regular payments to your chosen caregiver or formalize a plan by using a legally binding pet protection agreement.

Be sure to consult a financial expert, estate planning attorney, or tax professional to educate you on the many options available. A professional can help you make sound decisions about structuring your estate and distributing it according to your wishes. You’ll want to discuss creating a living will and detail your wishes for end of life medical care such as the decision to be kept on life support or for receiving palliative care. You’ll also need a durable financial power of attorney giving authority to a trusted person to manage your financial affairs if you are incapacitated. Likewise, it’s important to also choose a healthcare proxy or medical power of attorney to make healthcare decisions on your behalf if you are incapacitated. Elect someone you trust to communicate your wishes. 

#3 Secure Quality Insurance (Yes, Even Without Kids)

Insuring against death and disability can be expensive and DINKS should consider if the costs are worth the benefit.

Life Insurance

If you don’t have a spouse or dependents that are counting on your income to pay the bills, help pay for college, etc. you may not need life insurance. However, as DINKS, you’re probably used to spending a significant amount of money on your lifestyle. If maintaining that way of life is dependent upon dual incomes, life insurance for you and your partner is a must until you’ve reached financial independence. 

Disability Insurance

There is a wide range of schools of thought when it comes to disability insurance. Obviously, a lot of it depends on your current financial situation so let’s walk through all ends of the spectrum:

No Disability Insurance at All

If you’ve reached financial independence or far exceeded your goals, you can completely opt-out of disability insurance. You’d still need to plan or understand the implications if you were to both be severely injured in an accident. Of course, this would result in higher than anticipated expenses during FI. If you are a DINK household and working, there are probably better, cost-effective strategies that help manage your financial risk. 

Maximum (or some) Disability on Both

This is likely the most “belt and suspenders” approach to disability insurance in a DINKs household. The plus side is that you will lock in income in case of a disastrous event that happens to both of you. The downside is that maximum disability is not all that cost-effective. The total cost can be around 5% of the income protected. If you are looking at a total of $35,000 of monthly benefit, that can equate to an annual cost of $21,000. The opportunity cost of investing that at an 8% return annual for 20 years is ~$960,000. 

The alternative option is to opt for “some” coverage on both of you. You don’t need to necessarily max out disability insurance, so you can opt for 60-75% coverage on your income. In the event of you getting separated, you’d both have coverage along the way. The partial coverage would certainly be enough to maintain your living expenses as disability benefits are generally tax-free. Find out what group policies are offered by your employers as that may be a good way to reduce the cost on your premiums along the way.

Maximum Disability on One

The flexibility of being a DINK offers the opportunity to max disability insurance on the higher income partner and drop it for the lower. For example, if the higher earner needs a disability benefit to cover $20,000 of monthly income, that benefit will cost around $12,000 annually. A $20K monthly benefit should ensure that you would both live comfortably if disaster struck like the doomsday of both being injured. 

Health Insurance

We take a very simple approach to health insurance. My wife and I want to enjoy life and our livelihoods as much as possible. It’s part of the reason why we don’t have kids. To enjoy life, we have to maintain top health and ensure we are adequately covered in case disaster strikes. Plus, without the expenses of a child, we have the room within our financial budget to pay up for health insurance. We both believe it’s money well spent. 

So, we evaluate who has the best health insurance coverage and options between us. Then, choose that plan and run with that coverage plan. We usually take the PPO plan to allow us to choose providers that are most convenient for us even if it means higher out of pocket costs. An alternate option is to go with a high-deductible health plan and opt for a tax-advantaged health savings account.

Long Term Care

DINKS will need to have a plan in place for when they are not able to care for themselves and need in-home care, assisted living, nursing home care, or even just rides to the doctor, help with errands, or cleaning the house. Here are several options to pay for these needs:

1. Government programs, such as Medicaid or the Veterans Health Administration. Government programs are limited and will never be able to pay for quality long-term care.
2. Traditional long-term care insurance (traditional policies and hybrid policies that include life and long-term care). Monthly premiums are expensive when compounded over decades.
3. Hybrid policies that combine long-term care with life insurance or annuities. Mixing insurance with investing has significant drawbacks.
4. Personal savings. High-income DINKS should be in a position to self-insure rather than having to rely on any of the above options. Remember that decision we discussed above to spend or invest $15,000? When invested it grew into $842,000 after 20 years. This is why we invest and save! Put at least 20% of your savings to work throughout your life and you won’t have a problem paying for quality, reliable, comfortable long-term care.

#4 Take Care of Taxes

DINKs often have higher tax liability due to a loss of child care deduction, loss of child tax credits, and perhaps less mortgage interest due to a smaller house. Consult a tax expert to find ways to protect yourself from the tax burden. Even if you don’t have a tax burden yet. It’s never too early to think about taxes because they aren’t going anywhere anytime soon…

An example personally is that I took large capital gain in 2019. I really did not have a ton to offset that gain. I neglected to properly address my tax liability in an efficient manner. This resulted in full payment of the capital gains and it resulted in a $27,000 tax bill. Yikes! I’ve never had to write that big of a check for taxes. 

Be sure to fill out your W-9 properly and take advantage of every deduction available to you, such as two sets of retirement accounts and possibly a 199A deduction or two. You may also have more disposable income to use for deductible charitable contributions. 

Here are some strategies that have helped me reduce my tax burden:

1. Always max out your pre-tax retirement accounts (Roth IRA/IRA and 401k). 
2. Take advantage of pre-tax employer programs for commuting, flex spending, and HSAs. 
3. Hold emergency funds in tax-free municipal bonds. 
4. Tax-loss harvest.
5. If you have significant income or liability, consider investing in an Opportunity Zone fund which defers your capital gains and you pay no taxes on the gains in the fund. 
6. Also, speak with your tax expert about tax credit opportunities like the solar investment tax credit or low-income housing. 

DINKS Conclusion: It’s an Opportunity

The DINK lifestyle is an opportunity. Regardless of the reason why you don’t have children, make the most of it to reach financial independence earlier. Use those two incomes to wipe out your debts and build assets quickly. Then get busy wiping out that bucket list! Be careful to avoid reckless spending on luxury items, entertainment, expensive trips, and branded wear.  Immediate gratification can be more appealing than a long-term financial strategy. Make responsible financial decisions and manage your time effectively and you will be able to successfully mitigate the unique aspects of DINK financial planning.

What do you think? What do you see as the most significant financial issues for DINKs? What are their greatest advantages and disadvantages?  Comment below!