Single-Income Versus Dual-Income Families

This is going to be a bit of a Pro/Con post, but I’m going to write both the Pro and the Con side! I feel qualified to do so as we’ve been all of the following:

  • Low Income Single-Earner Family
  • Low Income Two-Earner Family
  • Medium Income Single-Earner Family
  • Medium Income Two-Earner Family
  • High Income Single-Earner Family
  • High Income Two-Earner Family

But I’ll let you be the judge of whether I give either side of this argument short shrift. This topic is surprisingly controversial across the internet, so it should be a lot of fun to discuss. We’ll mostly be talking about high-income families since that’s what most readers of this blog are.

Pro 

One-Earner Families Are Super Efficient

One-earner families are awesome for a lot of different reasons. Let’s list them out:

Lower cost of education

While both partners in many families (like mine) have advanced educations, you can save a lot of money on medical, dental, or law school educations in a single-earner family. Most of the time when I meet couples with more than $500K in student loans it is because both of them went to professional school. That much debt is a big deal in any family, but especially if one person later decides they want to work part-time or not at all. In a single-earner family where only one of them went to professional school? Much easier to manage that $200-300K debt.

Lower payroll taxes

One of the most expensive taxes on a two-earner family is paying Social Security tax on both partners. In 2018, the maximum income subject to Social Security tax is $128,700. When you include both the employer (6.2%) and the employee (6.2%) half of that tax, it adds up to $15, 959. In a two-earner household, you can double that- nearly $32K in Social Security tax alone! How many days does that second earner have to work just to pay that Social Security tax? At $1,000 a day, that’s nearly a month’s worth of work.

Better return on Social Security dollars

As long as we’re talking about Social Security, let’s talk about the back end- when you start getting the benefits. Even if the non-working spouse never works forty quarters in their entire life, they still get 1/2 of the working spouse’s Social Security benefit. And when the working spouse dies? They get the Social Security benefit of the spouse. What does the two-earner family get? Well, they might get a little more if they’re both high earners, but at best they pay twice as much in taxes for just 33% more benefit.

Lower income taxes

Lots of people talk about the “marriage tax penalty.” That’s not an entirely accurate way to describe how the tax code works. In reality, marriage decreases your tax burden. You get more advantageous tax brackets and lots of your phaseouts are raised. The penalty is on a married couple where both are earning money. In reality, having a stay-at-home parent is a great way to reduce your tax burden. And given that the second spouse’s income is essentially all taxed at the first spouse’s marginal tax rate (or higher) and our tax code is progressive, it gets even worse. Higher incomes mean more phaseouts too. If you’re wondering how other families seem to get by on a gross income of $50-100K, the answer is often a dramatically lower tax burden.

Specialization breeds efficiency

One-earner families have often found that by having one person earning and one person being a homemaker, they are both able to specialize on what they do best. The earner has nothing holding back her career. She can come in early, stay late, work weekends, and take on big projects knowing there is someone else who will keep the home fires burning, pick up the kids from school, get them to piano lessons, and make sure they are becoming good people. Meanwhile, the stay-at-home parent can concentrate on efficient spending of the household’s resources and making sure the non-financial tasks of the family are done well.

Fewer work-related expenses and hassles

Spring break in Canyonlands, NP backcountry

Having two high-income jobs brings on a lot of additional expenses. Medical staff dues, malpractice insurance, DEA fees, CME fees, licensing fees, commuting costs, and work clothing all add up quickly. But they’re doubled if you’re both docs. Even if one or both of you is working part-time, those expenses are all doubled.

Lower child-related costs

Childcare is crazy expensive, especially in big cities. It can be downright depressing for a couple to calculate the hourly rate for the second spouse once you take not only the additional taxes but also the additional costs of childcare into account. It is often significantly less than minimum wage unless that second spouse has very high earning potential. There is a child care tax credit, but most who read this blog are phased out of it.

Easier scheduling

There is no need to plan vacations, trips, and even day to day activities around two work schedules if only one person is working. If the worker has 5 days off, they can go on a 5-day trip. This effect is markedly decreased with school-aged kids unfortunately as they often dictate vacation schedules.

REPAYE subsidies

The federal income-driven repayment programs provide lower payments, and with REPAYE, higher subsidies to one-earner families. If nothing else, this dramatically decreases the complexity of student loan management.

In short, a single-earner family can be a very efficient way to have a great life on a surprisingly low amount of income.

Con

Two-Earner Families Have More Flexibility

My wife has been back in the workforce for the last couple of years after a decade-long break incarceration opportunity. Sure, she works from home as an owner and employee of The White Coat Investor, but don’t laugh, she probably makes more than you do and works just as hard. Plus her boss partner is tough to deal with. But this has given us the chance to see some real benefits of being a dual-earner family.

Less need for life and disability insurance

Gold Level Scholarship Sponsor

Two-earner families can often function at least partially as each other’s life and disability insurance. If you only have one earner, you’d better insure very well against something happening to that earner. The difference here could be $500 or more a month.

Higher income

This one doesn’t get enough press. One of the best parts of being a two-income family is that you get two incomes. That’s more money. Sure, you spend more on taxes. Sure, you spend more on child care and work expenses. But in the end, you’ve got more money. That means more financial security. Better vacations. Better stuff. Earlier retirement. While I think it’s not that hard to become a financially independent multi-millionaire as a single-doctor family, there’s no doubt that the higher your income the easier it is to become rich. You can spend more, save more, invest more, and give more.

More retirement accounts

Here’s another one people don’t think about that often. Two earners often mean two sets of retirement accounts. If two couples, one a single-earner and one a dual-earner, need the same amount of money to retire, guess which one is going to have a larger percentage of their nest egg inside tax-protected and asset-protected accounts? Even if you’re not maxing out your opportunities, you get to choose the better plan to do your investing in. You may even qualify for two employer matches. Sure, single-earners get to use a spousal Backdoor Roth IRA, but that’s only $5,500. With Katie working at The White Coat Investor, we get to put $110K instead of $55K into the WCI Individual 401(k). At our 42.9% marginal tax rate, that’s  $23,595 off our tax bill. Every year. And that doesn’t count the effects of decades of additional tax and asset protection.

More opportunities for part-time work

The flexibility of having either partner be able to support the family is huge. In particular, this often results in the opportunity for part-time work. Working part-time is an incredible burn-out reducer. When you are both capable of breadwinning, you can both go part-time or alternate who is part-time throughout your careers. You’re working less for money and more because you want to and that can result in more enjoyable careers.

More opportunity to pursue passions

Lots of two-earner families have two earners simply because both partners wanted to pursue a paid career. If both partner’s passions involve paid work, that can become a big issue in a one-earner family. If one partner would rather be earning but feels forced to keep house and change diapers, a lot of resentment can develop. Likewise, the breadwinning partner often forgets that just because work isn’t paid doesn’t mean it isn’t work. All of that is avoided when you both have jobs and are both contributing to the household expenses. Americans, in particular, attribute a lot of status to their professions and careers, and having two earners allows both partners to have that status.

WCICon18

Shared career sacrifices

Sacrifices sometimes have to be made in order to have both partners in the workforce. But when there are two of you, those sacrifices can be shared. This leads to a sense of equality in the relationship. Perhaps one person passes up a promotion for the good of the family, but the next time, the other person can do so. While good relationships should always consider it “our money” no matter who earned it, that is psychologically easier to do when both are earning.

In summary, dual-earner families can build wealth more easily and have more career flexibility while pursuing their passions.

What do you think? What advantages or disadvantages of single or dual-income families did I miss? Comment below!