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Seven Financial Planning Steps that every LGBTQ Person Needs to Take

Miriam Giardina, Plexus Member

Seven Financial Planning Steps that every LGBTQ Person Needs to Take

As LGBTQ people, we know we must take extra care planning the details of our lives from where we live to who we come out to. Being LGBTQ can directly or indirectly impact where we work and how much we earn. Every person needs financial forethought and planning, but being LGBTQ adds nuance and layers of complexity. Because we may delay getting married, structure our families in non-traditional manners, or live differently than our straight peers, our financial lives can look vastly different than what traditional financial professionals may realize.  The following steps of a strong financial plan take on increased importance for LGBTQ people.

One: Create a budget and a spending plan

Budgeting is the foundation of personal finance that everyone secretly despises. Especially in the United States, we don’t like to tell ourselves “no.” We are constantly bombarded with opportunities to spend our money. But if we do not tell our money where to go, it will tell us where we must go. All adults must determine how much to spend on housing, food, transportation, pets, and so on; LGBTQ people have specific considerations to adjust for. LGBTQ people tend to live in urban centers, incurring higher housing costs. Events like marriage may cost us more out of pocket because we might buy two engagement rings or pay costs without the help of parents/family. To build a family, adoption or fertility costs are highly likely. These lifestyle differences can lead to tens of thousands of dollars in additional savings required over a lifetime. Savings and diligent budgeting are essential to a well-lived LGBTQ life.

Two: Start or increase your retirement savings

Numerous studies have demonstrated how unprepared Americans are for retirement. Millions of people have no retirement savings at all; millions more do not have enough saved to maintain their lifestyle in retirement. From my experience, much of this seems to stem from people truly not realizing how much they need at retirement to last them for the rest of their life. People depend on their state pension or social security to cover everything. Using a combination of pensions, annuities, and investment accounts is worth considering. Recommendations to save around 15% - 20% of income are based on solid math.

According to Forbes Magazine, LGBTQ people have less access to work sponsored retirement plans than their straight peers: 40% of straight people have a 401(k) or similar plan while only 35% of LGBTQ people do. You can compensate by saving into an IRA (Individual Retirement Account), which allows you to contribute up to $6,000 annually, if you are under 50 years old, and up to $7,000 annually, if you are fifty or older (in 2021). Anyone who has earned income can contribute to an IRA, so long as they do not exceed income limitations for the account. Currently, Forbes reports, only 18% of LGBTQ people are using an IRA, while 30% of straight Americans contribute to an IRA.

Socially Responsible Investing has grown in popularity over the last several years and investing in ways that reflect their values has importance in the LGBTQ community. Talk to a financial professional about how to build a portfolio that reflects your values. They may be able to help you build an ESG portfolio (using environmental, social, and governance criteria for choosing companies to invest in) or one based on the new stock index LGBTQ-100, an index1 that “represents the top 100 hundred LGBTQ equality-driven U.S. companies from a universe of 500 publicly traded large-cap corporations.”

Three: Create or update your estate plan

Estate planning sounds like a fancy, scary, and expensive thing. If you’re like me, you might never have talked to a lawyer growing up and you only heard about estate plan in movies about the ultra-rich. But an estate plan ensures that your assets and your family are protected. Yes, it costs money to create one, but there may be ways to manage the expense. A lawyer familiar with specific needs of the LGBTQ community will be able to advise you on items such as living wills, advance directives, choosing and designating powers of attorneys, wills, and trusts. If you become too ill to make these decisions, it could add an undue burden on your family. If you pass before making these decisions, the division of your assets according to state law may not be what you wish it would be.

Questions such as how children will be cared for in the event of one or both LGBTQ parent’s death and about how to pass on assets – whether money, property, or real estate - for unmarried life partners are paramount to consider.

Four: Conduct a life insurance needs analysis

An employer may offer life insurance to employees, either at a flat face amount such as $100,000 or as a factor of income such as 1.5 times salary. This may not be enough to meet your and your family’s needs. You can work with a professional or visit lifehappens.org to develop a better understanding of your life insurance needs.

Life insurance can be tricky for people to understand because coverage comes in such large amounts For example, I recently told a client, according to the needs-analysis, they needed coverage in the amount of $1,000,000. Their eyes widened in shock. I explained that $1,000,000 is not meant to be spent on a funeral or on any single item. For this client, we were discussing life insurance to help answer the question “what would your spouse and children do without your income?” The life insurance can provide a way to replace a portion of an income, to pay off debts, or to reserve for future expenses such as a child’s college education. A financial professional will be able to help you determine what kind of life insurance policy you should consider to meet your family’s needs.

If one of your goals is to provide funds for your children’s future in the event of your death, return to step three. Without proper planning, naming children as beneficiaries on a life insurance policy can be messy. For example, if you die and your minor child inherits $1,000,000, their guardian will have the funds until they are 18. When your child turns 18 and suddenly has $1,000,000 to their name, would they know how to handle it?

Five: Review and/or purchase your disability insurance coverage

Disability income insurance, sometimes referred to as disability insurance, is a way to protect your income in the event you are unable to work for an extended period. The insurance will pay a portion of your income to you if you become disabled. You might have some group disability coverage offered through your employer, but it may not cover 100% of your need. If you are unable to work, you want to be able to pay your bills and keep your standard of living. You’ll want to be able to continue retirement contributions. Purchasing an individual policy helps ensure you are always covered regardless of a job change or any shifts in your employer provided benefits.

Six: Create a Long-Term Care Plan

Right now, there is a 50/50 chance that a person in retirement would need some form of long-term care. Long term care includes a stay in a nursing home, assisted living facility, time spent in community-based programs, and support with daily tasks such as grocery shopping, driving, or taking medications. There is medical and non-medical, formal and informal, long-term care. Many people mistakenly believe that the government will pay for this care through Medicare. Medicare has myriad restrictions and limitations to paying for long term care, and creating a plan is something I recommend to all my clients.

I also ask clients what their role for long-term care may be in someone else’s life. Is there a family expectation that you be the one to care for a parent or relative? If so, have you considered how you would manage that with your own work, family, and community obligations? Often, an LGBTQ family member may be the expected default caregiver if they do not have children of their own. Caregiving can have an impact on earning potential, mental, and physical health. Have these discussions early to make sure the family’s plans and expectations are in alignment.

Informal long-term care – family members, friends, or neighbors caring for a person – is the most common form of long-term care in the United States. The estimated economic cost of informal care each year totals $234 billion, accounting for 55% of all dollars spent on the long-term care need in the country.

Individuals may plan for costs of long-term care by earmarking a portion of their retirement savings, purchasing a long-term care insurance plan, or by adding a long-term care services rider to a permanent life insurance policy. Building insurance policies can be a good way to plan in case the need arises but there are many variables to consider such as average costs in your area, inflation, your current and past medical history, and your overall retirement plan. Just like any other transition in life, the earlier and more diligently you plan, the more successful you will be at meeting your goals.

Seven: Conduct an annual beneficiary audit

I recommend to all my clients that they check every account and policy each year to see who the beneficiaries are. After years of living, we can accumulate a dozen or more accounts in our name: pensions, 401(k)/403(b) plans, life insurance policies, checking and savings accounts, investments, and more. Who you named as the beneficiary when you started working at your job several years ago, may not be the person you’d name today. Go ahead and update that.

If you are not legally married to your life’s partner, naming them as a beneficiary will be essential. The default in our legal system for next-of-kin designations may not be what you desire. Do this every year, for every account, and write down the named primary and contingent beneficiaries for every component of your financial plan.

Collaborate to get the tasks done!

You don’t have to address all these steps yourself.  Work with a partner, a spouse, a trusted friend, and trusted advisors in the LGBTQ community to develop solid financial plans. No matter where you are in the process, the most important thing is to keep working to develop your plan and to do your best implementing it. Whether you are just starting off in your career and need help understanding what a 401(k) plan is or you have several accounts at past employers that you need to track down; whether you have insurance policies and need to ensure they still work for your family or you need help finding a policy that’s appropriate for you; whether you think you are ready to retire or think you’ll never be able to do so, a financial professional is a helpful person to talk to. Whether you just had children or they’re grown and out of the house, talking to an attorney about an estate plan is a great idea. Go forward slowly, so long as you go forward.

 

1 Note: it is not possible to invest directly in an index

Sources

Equitable Advisors and its associates and affiliates do not provide tax, accounting or legal advice or services.  You should consult your own tax and legal advisors regarding your particular circumstances.

Miriam Giardina offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN), offers investment advisory products and services through Equitable Advisors, LLC, an SEC-registered investment advisor, and offers annuity and insurance products through Equitable Network, LLC.  Individuals may transact business and/or respond to inquiries only in state(s) in which they are duly licensed and registered.  AGE-159158(03/21) (exp.03/23)