The lesbian, gay, bisexual, and transgender retirement community (LGBT) has set aside more money for retirement than the general population and believes its retirement spending needs will be substantially larger as well. According to a recent survey by Wells Fargo, the median LGBT retiree has saved $450,000, compared with $350,000 for a national sample of retirees. Whereas the median national retiree thinks he or she needs a median of $500,000 in savings, the median LGBT retiree believes he or she will require $800,000.
Among all LGBT investors, average savings now total $150,000, only about a sixth of the $900,000 they expect to need for their retirements. They are slightly more optimistic about reaching this goal than the national sample (61 percent versus 53 percent) but many still expect they will need to work during their retirement years (36 percent versus 41 percent of all investors surveyed).
Last week, a Boston federal appeals court ruled that the 1996 Defense of Marriage Act was unconstitutional. This likely will lead to a U.S. Supreme Court test of the law. It will also intensify attention to the financial concerns of the LGBT community, particularly involving the rights of same-sex couples to receive federal tax and benefit treatments now available only to married heterosexual couples.
Kyle Young, a certified financial planner with Wells Fargo who advises LGBT clients, says "clients within the LGBT community tend to be higher earners and tend to be more career-oriented," he says. With smaller family structures and often no children, "they can concentrate more on advanced degrees and on their careers."
Having often only a partner in their direct family unit, LGBT community members also have the time to travel and engage in more leisure-time activities, Young says. And lower family expenses may also make it easier to save for retirement. At the same time, he says, not having a large family support structure may expose older LGBT members to higher caregiving costs and require them to be more financially self-reliant. "We don't have the extended family network to depend upon for later-life care," Young observes.
Lacking many of the legal rights of heterosexual married couples raises major estate, pension, tax, and property ownership issues for LGBT members, Young says. Even so, the survey found that LGBT support for legalizing same-sex marriage was based mostly on a desire for equal rights as opposed to financial and tax parity.
The recognition that LGBT individuals may face special financial problems led Young several years ago to begin working with the College for Financial Planning on specialized education for financial advisers dealing with LGBT clients. Advisers now may earn an Accredited Domestic Partnership Advisor designation, which Young estimates has been awarded to about 150 financial planners throughout the country.
Several items top the list of LGBT financial planning issues, he says, beginning with estate and inheritance taxes. A married heterosexual couple has an unlimited ability to pass assets to one another, both during their lifetimes and usually afterwards. LGBT couples, by contrast, lack such federally guaranteed rights. Estate taxes have been relaxed in recent years but are set to revert in 2013 to a tax exclusion of only $1 million, above which a 55 percent tax rate will apply.
Any member of an LGBT couple with financial and property assets topping $1 million may be subject to such taxes, whereas the surviving member of a heterosexual married couple can usually receive a deceased spouse's assets with no tax liability." Young's advice here to LGBT couples is to begin as soon as possible to convey gifts to their partner, taking advantage of the annual tax deduction for gifts ($13,000 to each individual in 2012).
"For gay couples," he adds, "one of the easiest and most cost-effective ways to deal with estate liabilities is to purchase life insurance." Further, many states have both a state-level estate tax and a state inheritance tax, "so it's important for LGBT couples to be aware of state tax rules," he says.
Pension and Social Security benefits are another problem because spousal benefits aren't allowed. "Companies are not required to allow spousal beneficiaries [to LGBT partners] on pension plans," Young says. "Many employees who work for these companies do not know that this is the situation." Likewise, Social Security does not provide spousal benefits to same-sex partners. Additional life insurance may be a sound strategy to insure against the loss of household income should a LGBT partner die. Premiums can be expensive on policies purchased by older retirees, but the alternative is worse.
Lastly, the proper titling of homes and other assets can be a serious problem. Often, Young says, LGBT couples want to place valuable assets in joint ownership to make sure the surviving partner has title to the asset. However, moving assets into joint ownership can trigger big gift taxes for such couples because their partners are not recognized as spouses entitled to tax-free joint ownership recognition.