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The Evolution of Financial Planning in the LGBTQ Community


The financial planning landscape is shifting for LGBTQ couples. The right for same-sex couples to marry simplified many financial planning issues faced by the LGBTQ community. A SAGE study shows that 51% of elderly LGBTQ people are worried they won’t have enough money as they look toward retirement. However, since the legalization of same-sex marriage, several things have changed for this community that provide enhanced retirement planning opportunities.  


Retirement Planning for LGBTQ Couples 

Social Security 

Although Social Security benefits only make up a small portion of your retirement income, they can still be useful in maximizing full benefits to both partners. Now that same-sex marriages are legally recognized, you and your spouse will want to coordinate how and when to start collecting Social Security benefits.   

Social Security benefits are eligible to be collected at a reduced rate at age 62. This reduction is between 25-30% depending on the initial date of collection and how far away you are from Full Retirement Age. If both partners can delay in collection, there could be some significant benefits in both monthly payout and future spousal benefits. 

As Social Security benefits gets incorporated into a financial plan, it should be determined what strategy to use for the family unit to maximize benefits that were previously not available. 


Pension Planning 

Pension plan election options have changed in recent years. Even if you decided to not get married given recent law changes, there may be a slim chance that can be listed as a joint recipient on an annuity with your partner. However, to ensure that this is not a challenge, getting married with ensure you have the same collection and survivor benefits as an opposite-sex married couple. 

 

Beneficiary Questions 

Withdrawals from your workplace retirement plan may probably make up the largest chunk of your cash flow during retirement. 

In the world of insurance and retirement plan options, not all companies are created equal. Many employers, insurance companies, and retirement plans recognize same-sex marriage and partnerships – but some don’t.  

A few companies, in particular, do an especially wonderful job of supporting the LGBTQ community. State Farm, MetLife, and Nationwide, for example, all have been recognized for equality initiatives. 

Even if your insurance company isn’t as forward-thinking, and you don’t feel you can contest their policies, it often makes sense to reach out to your Human Resources department to learn more about how you can remedy gaps in beneficiary flexibility. Talking to a fiduciary financial planning professional can help you work through your options if you run into planning problems as a result of discrimination. 

For many same-sex couples, setting up a Trust is one way to pass on assets to a partner if it can’t be done through traditional beneficiary options. Discuss this option with an Estate Planning attorney to learn about the best option for you. 

 

Insurance Needs 

The Affordable Care Act (ACA) has made health care available for everyone, including those who couldn’t previously receive coverage. Unfortunately, there are still several insurance companies who make it difficult to receive care as an LGBTQ individual. More specifically, many healthcare organizations don’t offer coverage for sex reassignment surgery or any services related to a sex change, according to HealthCare.gov. In these cases, it can be beneficial to seek insurance coverage from a known LGBTQ-friendly healthcare provider.  

Another insurance benefit is being eligible for joint Long-Term Care insurance. Some policies allow both spouses to be insured under one insurance policy and collect on the same benefit pool. Prior to the legalization of same-sex marriage, this policy was often not being made available to domestic partners, depending on the state in which you lived.  

 

Estate Planning Considerations 

Estate planning is an important part of everyone’s retirement plan. A few estate planning to-do’s would be: 

  • Execute a will 
  • Writing a living will (which could include do-not-resuscitate or other instructions) 
  • A power of attorney for both health care and property decisions 

Having these safeguards in place helps make sure that you’re protecting your spouse or partner and setting up the legacy you want to leave behind.  

If you’re an LGBTQ couple, you should also check into whether or not you’re legally married. When same-sex marriage was legalized, many states automatically transferred domestic partnerships and civil unions to marriage in their records. Although this may not throw a wrench into how you live your daily life, it could impact the way you approach estate planning (from a legal standpoint). Either way, it pays to look into it with your local county or state government. 

 

Professional Guidance Can Help Keep You on Track 

Everyone faces a number of financial planning concerns, especially as they near retirement. Talking with a CFP® professional who has experience planning for members of the LGBTQ community can help.  

As a financial planner who works with several LGBTQ couples, I’ve helped various clients navigate through their transition of being a same-sex couple for many decades and then into their newly-recognized “married” status. While it changes how you are recognized legally, there are so many knock-on effects as it relates to account titling, beneficiary elections, life insurance design, and estate planning considerations. One client in particular was able to list his husband on his pension, allowing him to receive 50% of his benefit at this passing. Given there is a significant age gap between these two gentlemen and this pension is a substantial asset in their financial plan, this change alone made a huge different in the long-term success of their joint financial plan. 

If you find yourself confused as to how your change in marital status affects your finances, why not set up an appointment with me and we can discuss it.