Many of you have heard about the dual-income-no-kids (DINK) community. There is a growing population, gay and straight, single and married, who are opting to have a child-free life (except the occasional visits to our favorite nieces and nephews). They are wondering how to squeeze out every last dollar from their portfolio without the risk of running out. Yes, it’s time to address the needs of what I will call the “more-income-no-kids” community, otherwise known as MINK.
Live with a Lot, Die with a Little
For the record, I understand that having kids, at least for the lucky ones, may be the most rewarding and awesome experience a person could have. They are essential for the survival of the planet and the growth of one’s investment portfolio. I love my niece and nephew as much as they love their favorite uncle (me, of course). My goal is to address the financial needs of couples and single adults who don’t have kids or dependents. The MINK crowd is more concerned with maximizing their income than with dying rich. Here’s one possible strategy for having the most fulfilling financial life in the post-work years.
The MINK Dilemma
- Your stomach can’t handle another big recession, so you have concerns over having your wealth subject to the market’s movements.
- You want some kind of guaranteed income stream that can keep pace with the rising costs of your expenses (inflation).
- You want to spend down your principal since leaving a big inheritance to someone else is not a top priority, but you don’t want to outlive your wealth.
- You have no kids to rescue you if you outlive your assets.
What’s a MINK to do? Let’s assume that you have a $2 million investment portfolio as you enter your seventh decade of life.
Fixed annuities can be attractive to many retirees because they may allow you to convert assets into a type of “pension” income stream. An insurance company receives a lump sum of money from you and then pays you an agreed-upon annual amount for life. Imagine what it would cost for your basic needs (think food, medical, housing costs, etc.). If your Social Security benefit is $3,000 per month and your total expense for “needs” is $6,000, you could buy an annuity that’s large enough to pay you the other $3,000/month. When your portfolio is going through volatile times, you want to rest assured that you at least have enough income from the annuity and Social Security to keep the lights on. This may also prevent you from panicking and moving your portfolio to cash at the worst possible time.
If the annuity you just purchased cost you around $600,000, you’re now left with $1.4 million, which can be used to cover all of your other expenses (travel, charitable giving, entertainment, etc.). While financial planners continue to spar over what amount constitutes a “safe withdrawal” from one’s portfolio, let’s assume that 4% of the portfolio’s initial balance is reasonable—a draw of about $55,000 per year. You can raise that amount each year to keep pace with rising costs. Such a strategy requires a well-engineered and balanced portfolio.
The combination of Social Security, a small fixed annuity and an investment portfolio should allow you to spend more of your wealth during retirement without having to worry about running out. Please consult with a financial planner to see if this makes sense for you when the time comes.