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Are Two Incomes Really Better Than One?

There was a time when it was common for one spouse to go to work and earn a living while the other spouse stayed at home and took care of the house and the kids. Remember that?

As gender roles expanded in the 1960s and 1970s, these stereotypes went out the window—and both spouses often went to work. That was nice, but it also brought on greater financial stakes for families—particularly for affluent households, which are often presumed to have the most income potential and the most opportunity to live off of just one paycheck.

One would think that households with two incomes would be more financially secure than households with just one. But, ironically, research came up with a different conclusion.

Despite the dramatic increase in total household income from the 1970s to the early 2000s, total discretionary income actually declined over that same time period. Not only that, but total fixed expenses also went up, due in large part to the need to purchase a second car as well as housing inflation (as parents engaged in bidding wars to get their kids into good school districts).

At the same time, these families were also losing an important potential safeguard: the ability for a non-working spouse to get a job during a financial shock. All of this ultimately leads to the counterintuitive conclusion that a dual-income household may actually be MORE financially at risk when facing a sudden loss of one spouse’s income.

So what does this mean? If you have a household where both spouses or partners are working, you can potentially be the most secure when you live off of just one income instead of both. We know this is not a realistic possibility for many, but if you can swing it, you might consider spending as if you were living on a single earner’s income (even if you can afford to spend a lot more).

Of course, there’s a lot to consider here if you’re thinking about the dual-income versus single-income approach. With just one income, you have to think about emergency fund savings, disability insurance, making sure a non-working spouse can enter the workforce quickly if they need to, and what happens if there’s a divorce.

But the reality is that to simply assume a dual-earner approach is financially superior is not always correct. By delegating earning responsibility to a single individual and savings responsibility to the other, you may experience higher lifetime earnings and reduce the shock of one spouse losing their income. That’s right—sometimes two incomes are NOT better than one.

Information presented should not be considered specific tax, legal, or investment advice. You should always seek counsel of the appropriate advisor prior to making any investment decision. All investments are subject to risk including the loss of principal. This material was gathered from sources believed to be reliable, however, its accuracy cannot be guaranteed.

No client or prospective client should assume that the information contained herein (or any component thereof) serves as the receipt of, or a substitute for, personalized advice from Lucia Capital Group, its investment adviser representatives, affiliates or any other investment professional.

Raymond J. Lucia Jr. is chairman of Lucia Capital Group, a registered investment advisor and CEO of its affiliated broker-dealer, Lucia Securities, LLC, member FINRA/SIPC. Advisory services offered through Lucia Capital Group. Securities offered through Lucia Securities, LLC. Registration with the SEC does not imply a certain level of skill or training.

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