One of the most common misconceptions DINK clients have is that they can retire early without much planning as they aren’t funding child-related costs.Tijana Simic/iStockPhoto / Getty Images
Dual-income, no-kids (DINK) households are emerging as a unique demographic. Without costs for child care and education, or concerns about leaving intergenerational wealth, these clients often enjoy greater flexibility in their working years.
But that same freedom can lead to pitfalls, including undersaving and overconfidence in achieving retirement goals. Advisors can help DINK clients stay on track with tailored investment strategies, insurance policies and estate plans.
Planning for retirement
One of the most common misconceptions DINK clients have is that they can retire early without much planning, as they aren’t funding child-related costs. While it’s true that DINK households have fewer obligatory expenses, that doesn’t translate to financial security automatically.
As income increases, so can spending habits, sometimes without a corresponding rise in savings.
To protect against lifestyle inflation, it’s crucial to take a “save first, spend later” approach by maximizing contributions to RRSPs, TFSAs, and setting aside enough money to meet retirement goals. Implementing a bucket strategy and allocating funds into short-term, medium-term and long-term savings can provide structure, ensuring immediate desires don’t overshadow future needs.
As DINK clients typically have longer investment horizons and can handle illiquidity risk, advisors can emulate the asset allocation of pension plans by incorporating more alternative investment strategies, such as private equity or private debt, to potentially enhance long-term returns while diversifying their portfolios.
Preparing for long-term care and disability
Without the financial support of children in their later years, DINK couples must be particularly mindful of longevity risk, especially if they’re pursuing early retirement. Some of this risk can be offset with long-term care insurance, which can be modelled into a retirement plan to provide a wider safety net.
Advisors should model retirement projections with conservative estimates, factoring in extended lifespans and potential gaps in health care spending. Some clients may benefit from setting aside separate health savings buckets for future medical needs, which can be useful for uncovered costs and out-of-country treatment.
While life insurance may play a smaller role for DINK clients, who are typically less focused on leaving generational wealth, critical illness and disability insurance become more important. Without children as a fallback support system, the financial consequences of being unable to work can be significant. As premium payments rise with age, the earlier an advisor starts the conversation about insurance, the more cost-effective these strategies can be.
Without children, DINK clients often lean more on their friends and extended family for emotional support as they age. Advisors should encourage conversations that go beyond financial considerations and include building community and long-term support systems, particularly for those who may eventually live alone.
Estate planning
It can be common for DINK households to overlook estate planning because they don’t have children. In fact, because of the lack of clear beneficiaries, there are more options for managing the estate.
Philanthropy often becomes a prominent part of the conversation. Some clients may choose to establish donor-advised funds, which enable them to benefit from the immediate timing of tax deductions upon contribution and the potential for tax-free investment growth until the funds are distributed. Others may consider giving to extended family members, such as nieces and nephews, or supporting their friends.
As for naming the executor of a will, choosing a corporate executor tends to be the preferred solution for DINK clients, as they typically don’t want to burden family and friends. Designating a spouse or a trusted individual as a power of attorney is also crucial for having the legal authority to handle financial and legal matters in the event of an emergency.
Managing societal expectations
Although more couples are choosing not to have kids, societal expectations can put pressure on DINK clients to justify their choices and spending habits. Advisors should create a safe environment for their clients to express their desires while strategizing the most effective ways to achieve those goals. Whether it’s early retirement, pursuing more travel, giving to charitable causes or helping friends and family, DINK clients can achieve more with the proper advice.
Diana Orlic is a portfolio manager and wealth advisor at Richardson Wealth Ltd. in Burlington, Ont.