6 Financial-Planning Steps Same-Sex Couples Need to Take
The purchasing power of the LGBT community is estimated to be $917 billion in the US and $3.7 trillion globally. Queer money was roughly 14 percent of all disposable income in the US in 2016.
That purchasing power is driven in large part by the LGBT community’s increased earning power: The average lesbian couple earns $7,200 more than their straight peers, and the average gay couple earns $8,000 more. And it doesn’t hurt that nearly 80 percent of same-sex couples aren’t raising children, a savings of about $233,000 per child even before college costs.
Yet all that increased disposable income doesn’t translate to significantly higher savings. According to Prudential’s 2012 LGBT Financial Experience Survey, same-sex households had an average of only $6,000 more in savings than straight households.
This means the LGBT community, of which I’m a part, is spending our money against our own best interest. And we arguably have a greater need for savings and emergency funds: It’s long been the case that LGBT people can be fired in 28 states for their sexual orientation, and only 14 of those states have protections for transgender people. And while queer retirement centers and villages are becoming more common, most states still don’t have protections for queer people in institutions such as retirement centers, villages, and nursing homes.
This means we can be separated from our same-sex spouses or even forced back into the closet to avoid discrimination.
“It's more important than ever for same-sex married couples to ensure they’re on the same page financially and have a solid financial plan in place,” says Brian Thompson, a Certified Financial Planner focused on the LGBT community. Here’s what same-sex couples should be doing to protect their financial futures.
It’s a conversation we should have before marriage, but most people, straight or queer, don’t. We’re usually too wrapped up in the emotions of love to think about money.
Sooner rather than later, talk about money with your future or current spouse. Discuss where you stand financially as individuals or as a couple. Know how much money you have, where it’s located, and that you’re invested appropriately. Disclose your debts, including credit cards, car loans, medical bills, student loans, and mortgages.
Know what your individual and mutual goals are. Even if your goals aren’t the same, know that you can support each other in achieving your individual goals. As CFP David Rae from Los Angeles says, “LGBT couples need to get real, sit down with your significant other, and lay out the good and the bad. Cover all your assets and all your debt. You might be surprised how much more you can achieve when you work together.”
Have an Emergency Savings Account
Because of the ubiquitous employment and institutional discrimination LGBT people face, it’s more critical for us to have an emergency savings account. The common advice is to save three to six months’ worth of living expenses. Because we face uncommon risks, we should save between six to twelve months’ worth of living expenses if possible.
If you and your spouse live in a state where you could both be fired when you return from your honeymoon, it’s your emergency savings account that will help you get by until you’re both employed again. If one or both of you need long-term care and don’t want to run the risk of going to a traditional nursing home, it’s this protection that will get you access to in-home care or queer-friendly retirement homes.
Open a savings account at a bank or credit union with no check writing, bill pay, debit card, or other fancy features. Don’t connect this account to any other account for outgoing electronic funds transfers (EFT). This money should be hard to access, though not impossible. The harder it is to withdraw this money for a weekend get-a-way, the less inclined you’ll be to spend it.
Once opened, establish a recurring direct deposit from your employer into this account. The more you direct deposit into this growing emergency savings account, the faster it’ll grow. However, any amount is better than none.
Open your employer-sponsored retirement plan, such as a 401(k), pension, SEP or Simple IRA, if one is available to you. Then, contribute at least the minimum required to get the maximum employer match if an employer match is available to you. Not doing so leaves money on the table.
The contributions to such accounts are automatic with pre-tax dollars. That means your employer automatically deposits the amount you specify in this account before the IRS taxes it. You’ll pay taxes on the money you withdraw from this account after you’ve retired and your income is lower, but you’ll be in a lower income tax bracket.
If you have money available to invest after you max out your company-sponsored retirement plan, invest in an Individual Retirement Account (IRA), such as a Traditional IRA or a Roth IRA. If you still have money available to invest, invest in a taxable brokerage account. Investing in these accounts can also be automated. Once you open your accounts, set up direct deposit into them through your employer.
Save enough money to purchase a total stock market index. A total stock market index fund is one fund that covers the entire U.S. stock market. If you have enough money or prefer, invest individually into a large-cap index fund, medium-cap index fund, and small-cap index fund. Index funds typically have lower management expenses and don’t cost a commission or transaction fee.
We often only think of life insurance when we start families. So many same-sex couples not planning to have children don't give it much thought. But today’s life insurance does more than help partners and family members when we pass away.
Protect Against Creditors
Debts don’t disappear when you pass away. Depending on the type of debt you have and your financial situation, your loved ones may have to repay your loans. Consider getting life insurance to pay off your debts after you pass away.
Leave an Inheritance
If there are one or more people you’d like to leave an inheritance to, life insurance can help. You can leave an inheritance to family members, friends, former partners, and foster children.
Give to Charity
You may leave donations to charities to ensure your favorite organizations continue.
Healthcare can take as much as 30 percent of one’s retirement savings, and people who haven’t saved appropriately need help. Life insurance can include provisions, such as an accelerated death benefit rider, that allow for tax-free payments to cover medical care in certain “critical” circumstances.
Long-Term Care Insurance
While we’re on the topic of insurance, it’s important for LGBT people to consider purchasing long-term care insurance (LTCI). LTCI is one of the more complex parts of medical care because it usually requires the physical help of others. LTCI can range from help at home with basic needs, such as cooking, eating, and cleaning, to assisted living, which focuses on a person's day-to-day physical well-being.
Because many queer people and same-sex couples don't have children, it's critical to understand our expectations at various stages of our lives and health. Life, of course, may have other ideas. Know what you want if you’re going to live out your remaining years on your terms.
With insufficient finances or insurance, decisions on how you’re cared for may be left to the state or a guardian assigned to you. You want to live out your remaining years on your terms, not those of a third party.
Growing your nest egg is a long-term plan. No one expects you to save 12 months of living expenses, max out all retirement accounts, pay your bills and have a life all in one year. This is a marathon, not a sprint. Create a financial plan to achieve your financial goals in time. You may focus on one goal at a time or divide and conquer. These are decisions you, or you and your partner should make together.
Through it all, don’t forget to have fun. Saving and investing money is enjoyable, but include a strategy for fun money. “Set aside fun money every month, so you can take that dream vacation,” says Rae. “You can't starve yourself to an amazing body, and you can't starve your spending into being rich and happy.”
There are many tools at our disposal to protect ourselves, our spouses, and our families as queer people. It can even feel like there are too many tools at our disposal. It’s in all our best interests to map out a financial plan to achieve all our financial goals and needs. The stronger we are as individuals and couples, the stronger we are as a community. With that strength comes peace of mind, and you can’t put a value on that.