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While a number of landmark “protections” have come into play over the past few years for the LGBTQ community, things are still far from equal – at least from a financial and retirement planning standpoint.
As with most people, those in the LGBTQ community must face a number of “general” financial risks, including stock market volatility, low interest rates, inflation and rising health care costs – especially given longer life expectancy today (as compared to just a few decades ago).
But LGBTQ investors and retirees can face a whole host of added hurdles, too, like lower pay during their working years (which can equate to less money saved for retirement, as well as lower Social Security income benefits in the future).
The good news is that there are various strategies available that can help to get current and future financial progress on track for those who are in the LGBTQ community. Those strategies can help you or a loved one get closer to your savings, retirement and asset-transfer goals and objectives. You just need to know where to look for the right answers.
LGBTQ individuals and couples face unique challenges when it comes to financial and retirement planning. At the start of 2021, there were more than 3 million LGBT Americans over the age of 50 – and this number is expected to more than double over the next decade, given the massive amount of baby boomers who continue to reach this “milestone” birthday.
According to the Alliance for Lifetime Income, nearly 50% of all LGBTQ individuals fear that they will outlive the money they have saved for retirement. This is compared to only a quarter of non-LGBTQ people who face the same or a similar fear.
This is no surprise, though, as LGBTQ investors and retirees are less likely to have either a last will and testament or an estate plan compared to heterosexuals. In addition, based on information from the Federal Reserve’s Survey of Consumer Finances by the AP-NORC Center for Public Affairs Research, even when those in the LGBTQ community have one or more retirement accounts, they fall behind their heterosexual counterparts by roughly 25%. This number can be significant in terms of having enough money to last for the remainder of one’s lifetime or falling short when assets and income are still needed in retirement.
Although both LGBTQ and non-LGBTQ individuals and couples may share similar retirement goals, there are several factors that have an effect on the financial disparity of LGBTQ individuals today. The most common of these include:
Overall, many LGBTQ individuals continue to face discrimination in their personal lives as well as in the workplace, the public sphere and in their access to health care. This, in turn, can have a negative impact on their physical, mental and financial well-being.
More than one-third of LGBTQ Americans have faced discrimination in the past year. This includes mistreatment in their public, work and personal lives. Various subsets of the LGBTQ community – including those of color, disabled individuals and those who are transgender – tend to face higher than average discrimination.
Further, approximately one-third of LGBTQ Americans have reported that discrimination has “moderately or significantly affected their ability to be hired” for a job. So, this, too, can have an impact on both current lifestyle and future retirement security.
In order to avoid the experience of discrimination, more than 50% of LGBTQ Americans have reported hiding a personal relationship, and between 20% and 33% have altered other aspects of their personal and work lives.
This can lead to LGBTQ workers not performing at the optimal level in the work environment, and in turn, being passed over for promotions, raises, and other “costs” at the professional level that could also impact one’s current and future financial health.
It is no secret that there is – and for many years there has been – an income and earnings disparity between males and females, even for the exact same job. The same also holds true of other subsets of the population.
For example, heterosexual individuals make more, on average, than their LGBTQ counterparts. In addition to simply generating less in spendable cash flow, though, there are other serious ramifications, such as LGBTQ individuals having fewer means to achieve major financial milestones like retirement.
Based on research by Prudential, gay men make 46% less than straight men – at $83,469 versus $56,966, respectively. It is a similar scenario with lesbians versus straight women, with an 11% income disparity. While this can make a considerable difference in current lifestyle, though, when you multiply these figures by 40 or 50 years – or the total difference in income that would be generated over one’s entire working career – the contrast can be significant.
Members of the LGBTQ community are also less likely than straight Americans to have personal retirement accounts like individual retirement accounts (IRAs) as well as employer-sponsored plans like 401(k)s. All of this, in turn, leads to less money being put away in savings, along with the loss in earnings that these funds could have generated over time.
Family-oriented responsibilities and situations can also lead to financial disparity for those in the LGBTQ community. One key criterion here is that even after the legalized same-sex marriage, LGBTQ individuals and couples are still more likely to state that they are single than heterosexuals.
Further, many in the LGBTQ community do not have children. So, while these individuals may have fewer child-related expenses when they themselves are younger – including the cost of college tuition – when the time comes for LGBTQ elders to require assistance with daily activities like dressing, cooking and bathing, there are fewer loved ones for them to rely on. And this type of care can be expensive.
Based on Genworth’s 2020 Cost of Care Survey, just one month of care in a semi-private room in a skilled nursing home cost (on average) more than $7,750 in 2020. A private room, on average, cost more than $8,800 per month. So, it would not take long to deplete the savings of an LGBTQ or non-LGBTQ individual or couple if a long-term care need were to arise.
Alternatively, because there tends to be more “singles” in the LGBTQ group, these individuals are more apt to care for their own aging parents (versus their siblings doing so because of their own child-rearing responsibilities), at a ratio of 22% to 15%.
On top of that, as caregivers, these individuals can often find that they have higher out-of-pocket expenses – and this can end up doing a great deal of harm to their own future savings. So, it is important to check into long-term care insurance, “hybrid” annuities and government programs like Medicaid.
It may not be surprising that the LGBTQ community is underserved in numerous industries, including financial services. Even though many large banks, brokerage firms and insurance companies have started targeting LGBTQ consumers with their advertising, there are still many in the community who fear coming out to their own financial advisers due to fear of rejection. Not doing so, however, could lead to incorrect advice and financial strategies.
There are actually several ways that LGBTQ individuals can get ahead financially – even if you’re taking seemingly small steps. One potential solution is to make sure that you have available cash in case of an emergency. For instance, the out-of-pocket costs from a fender-bender or uninsured medical expense could be difficult to swing if all of your monthly income is already spoken for.
Likewise, adding to the balance of a high-interest credit card may not be an option (and if it is, it can prove to be an expensive one). That’s why many financial advisers recommend having at least six months’ worth of living expenses in an easily accessible, liquid financial vehicle like a savings or money market account.
Another way to better ensure future financial security is to start saving for retirement as early as possible – even if you are only able to set aside a small amount. In order to ramp up what you put into savings, you could take a look at how much you are spending on various items – such as cable TV, cell phone service and insurance coverage. If you can shop around and obtain a lower rate somewhere else, it may be well worth it to make the switch.
Also, if you are participating in an employer-sponsored retirement plan like a 401(k), it can be beneficial to deposit at least as much as you need to obtain a “matching” contribution from your company. This “free money” can give your account a boost without you having to make any additional savings or investment decisions.
In some cases, it could make sense to delay the start of retirement, as this may lead to a higher amount of benefit income from programs like Social Security. For example, those who are qualified for Social Security retirement income can claim these benefits as early as age 62. However, if you go this route, the dollar amount that you receive with each payment will be permanently reduced as versus waiting until you reach your full retirement age (FRA).
| Year of birth | Minimum retirement age for full benefits |
|---|---|
| Year of birth1937 or before | Minimum retirement age for full benefits65 |
| Year of birth1938 | Minimum retirement age for full benefits65 + 2 months |
| Year of birth1939 | Minimum retirement age for full benefits65 + 4 months |
| Year of birth1940 | Minimum retirement age for full benefits65 + 6 months |
| Year of birth1941 | Minimum retirement age for full benefits65 + 8 months |
| Year of birth1942 | Minimum retirement age for full benefits65 + 10 months |
| Year of birth1943 to 1954 | Minimum retirement age for full benefits66 |
| Year of birth1955 | Minimum retirement age for full benefits66 + 2 months |
| Year of birth1956 | Minimum retirement age for full benefits66 + 4 months |
| Year of birth1957 | Minimum retirement age for full benefits66 + 6 months |
| Year of birth1958 | Minimum retirement age for full benefits66 + 8 months |
| Year of birth1959 | Minimum retirement age for full benefits66 + 10 months |
| Year of birth1960 or later | Minimum retirement age for full benefits67 |
On the other hand, if you wait until after you’ve attained your full retirement age to start receiving Social Security benefits, the dollar amount of each payment will be more. In fact, for every year that you wait (until you’ve reached age 70), you can give yourself a “raise” of roughly 8% per year. This is referred to as the delayed retirement credit.
So, for instance, if 67 is your full retirement age, and your monthly Social Security benefit is $2,000 at that time, you could increase the amount by almost 25%, up to $2,480 per month, simply by waiting to file for these benefits.
| If you take benefits at age: | Monthly benefit amount: |
|---|---|
| If you take benefits at age:67 | Monthly benefit amount:$2,000 |
| If you take benefits at age:68 | Monthly benefit amount:$2,160 |
| If you take benefits at age:69 | Monthly benefit amount:$2,320 |
| If you take benefits at age:70 | Monthly benefit amount:$2,480 |
Another important factor to consider in financial planning – both for now and the future – is taxation. While taking advantage of pre-tax contributions and tax-deferred growth on certain types of retirement plans may be beneficial in the present, these moves could have a negative effect in the future when the time comes to make withdrawals.
One reason for this is because 100% of the funds that are withdrawn from traditional IRAs and retirement plans will be taxable – and, while no one knows what income tax rates will be in the future, based on what history has taught us, it is far more likely that they will be higher than they are today.
| Year | Rate |
|---|---|
| Year2018 - 2021 | Rate37 |
| Year2013 - 2017 | Rate39.6 |
| Year2003 - 2012 | Rate35 |
| Year2002 | Rate38.6 |
| Year2001 | Rate39.1 |
| Year1993 - 2000 | Rate39.6 |
| Year1991 - 1992 | Rate31 |
| Year1988 - 1990 | Rate28 |
| Year1987 | Rate38.5 |
| Year1982 - 1986 | Rate50 |
| Year1981 | Rate69.125 |
| Year1971 - 1980 | Rate70 |
| Year1970 | Rate71.75 |
| Year1969 | Rate77 |
| Year1968 | Rate75.25 |
| Year1965 - 1967 | Rate70 |
| Year1964 | Rate77 |
| Year1954 - 1963 | Rate91 |
| Year1952 - 1953 | Rate92 |
| Year1951 | Rate91 |
| Year1950 | Rate84.36 |
| Year1948 - 1949 | Rate82.13 |
| Year1946 - 1947 | Rate86.45 |
| Year1944 - 1945 | Rate94 |
| Year1942 - 1943 | Rate88 |
| Year1941 | Rate81 |
| Year1940 | Rate81.1 |
| Year1936 -1939 | Rate79 |
| Year1932 - 1935 | Rate63 |
| Year1930 - 1931 | Rate25 |
| Year1929 | Rate24 |
| Year1925 - 1928 | Rate25 |
| Year1924 | Rate46 |
| Year1923 | Rate43.5 |
| Year1922 | Rate58 |
| Year1919 - 1921 | Rate73 |
| Year1918 | Rate77 |
| Year1917 | Rate67 |
| Year1916 | Rate15 |
| Year1913 - 1915 | Rate7 |
With less money in savings (on average) and less in Social Security benefits (based on lower average lifetime earnings to base the benefit amount on), many LGBTQ retirees will already be at a disadvantage in the future when it comes to the amount of retirement income generated. So, dealing with higher income tax rates could add yet another level of concern.
That’s why many people are turning to the Roth IRA. While contributions to Roth accounts go in after-tax, the growth that takes place – as well as the withdrawals that are made – are all tax-free. Alleviating the reduction of spendable income from taxation can provide an added level of financial certainty in retirement.
In addition, your contributions to a Roth IRA may be withdrawn tax-free and penalty-free. Therefore, it can make sense for many LGBTQ investors to use Roth IRAs for “double duty” – retirement savings and an emergency fund.
If it appears that your (or a loved one’s) current employment situation isn’t going to change anytime soon with regard to earning more income, it may be time to either add to or enhance your current skills and start looking at alternate job opportunities.
The job search website Monster.com states that people are oftentimes more apt to obtain a pay increase by changing jobs than by sticking around at their current place of employment. The median tenure of workers aged 55 to 64 is 10.1 years, whereas it is just 2.8 years for those who are between the ages of 25 and 34.
Talking with a experienced professional in the retirement planning and income niche can also be a good place to start when preparing financially for the future. Because all situations can differ, though – even among those in the LGBTQ community – there is not just one single financial strategy that is right for everyone.
If you would like to learn more about saving and investing or converting what you have saved into an ongoing stream of income in retirement, contact an Alliance America financial professional.
Alliance America is an insurance and financial services company dedicated to the art of personal financial planning. Our financial professionals can assist you in maximizing your retirement resources and achieving your future goals. We have access to an array of products and services, all focused on helping you enjoy the retirement lifestyle you want and deserve. You can request a no-cost, no-obligation consultation by calling (833) 219-6884 today.
