Your financial plan should be unique. As an LGBTQ+ advisor that works with many LGBTQ+ clients, I am often asked, “Does financial planning look different for LGBTQ+ couples?”
While your financial goals may be unique to your situation, the framework to how we deliver holistic financial planning as advisors remains consistent. This is true whether I meet with LGBTQ+ or heterosexual couples. Everyone needs an estate plan or should understand the role of insurance in their financial portrait. In short, these planning fundamentals apply to all communities.
That said, there are certain distinct considerations the LGBTQ+ community should be aware of when it comes to financial planning. Whether starting your financial plan from scratch or performing an annual refresh, here are five steps you can take to ensure your financial journey is on the right path.
Step 1: Understand Your Cash Flow
Robert Kiyosaki said it best: “Making more money will not solve your problems if cash flow is your problem.” Regardless of orientation, understanding your cash flow is more important than knowing how to earn money. In the end, it is what you keep that matters.
You have many options to help make understanding your cash flow easier and less tedious. Applications let you visualize your income and spending so you have maximum control over your money. Budgeting apps can connect with your bank account and credit cards to automatically download transactions and categorize spending to match your chosen budget. Some of our favorites include:
The best cash flow resources are easy to use, integrate with your accounts, and have features to match your unique budgeting style. Money can be an intensely private thing though, so make sure to do your homework when choosing the right LGBTQ+ advisor for you.
Step 2: Fund an Emergency Reserve
Setting aside an emergency fund, also called a reserve fund, is one of the first and most important steps anyone should take to safeguard financial stability. The idea is you won’t have easy access to the fund for everyday purposes. It will just sit, earning interest, until you face a major unexpected cost or a need to cover basic living expenses if you lose your job.
Exactly how much money you should keep in your emergency fund depends on your situation. At an absolute minimum, it should cover your daily living expenses for three months. Six months is wiser, and some planners recommend a full year. The size of your fund may also come with other LGBTQ+ considerations, including whether or not to merge finances if you have a partner.
Regardless, don’t feel like you have to create your entire fund this week. Most people start by setting aside a monthly amount that helps them build up one month’s worth of living expenses over the course of a year.
Since you might need to access your emergency fund quickly, keep it somewhere that’s convenient and safe, such as an online bank like Ally or Marcus. When you’ve saved up enough, stop! You can now sleep easier and put any additional savings into investments or higher-interest accounts.
Step 3: Prioritize Retirement Savings
When planning for retirement, the truth is the earlier you start saving, the better off you could be – all thanks to the power of compound interest. Even if you started saving late or have yet to begin, it’s important to know you are not alone and there are steps you can take to increase retirement savings:
- Focus on starting today. Start saving as much as you can now, and let compound interest have an opportunity to work in your favor.
- Contribute to your 401(k). If your employer offers a traditional 401(k) plan and you are eligible, it may allow you to contribute pre-tax money, which can be a significant advantage.
- Meet your employer’s match. Make sure to contribute at least enough to take full advantage of any employer match.
- Open an IRA. Consider establishing an individual retirement account (IRA) to help build your nest egg.
- Take advantage of age 50 or older catch-up contributions. In the calendar year you reach age 50, you’re eligible to exceed normal limits with catch-up contributions to IRAs and 401(k)s.
- Automate your savings. Make your retirement contributions automatic each month to grow your nest egg without even having to think about it.
Also remember that whether or not you’re married has significant tax implications for the LGBTQ+ community and this might affect how much you’re able to put towards retirement, especially in your prime earning years. An LGBT-friendly financial planner and/or tax advisor can help you weigh the pros and cons of marriage and retirement savings.
Step 4: Establish Your Safety Net
Proper insurance planning is a pillar of any well-rounded financial plan. The right type and coverage can protect you and your family when the unforeseen happens. Being prepared for the unexpected will ensure you can still reach your goals after a financial crisis. An insurance policy will also keep you from emptying your emergency fund. Common insurances to establish your safety net include:
- Health insurance. While you won’t need every type of insurance that’s available, everyone should have health insurance.
- Auto insurance. Anyone with a car should have auto insurance.
- Homeowners/Renters insurance. Anyone owning a home or renting should have a homeowners or renters insurance policy.
- Life insurance. If you have children or a spouse, it is a good idea to get life insurance.
- Disability insurance. If you’re in the workforce, disability insurance can guarantee you have a source of income when you’re too sick to work.
- Long-term care insurance. Those approaching retirement may need long-term care insurance.
- Umbrella insurance. If you’re lucky enough to have more than $1 million in savings, you should consider liability insurance in case you’re ever sued.
Just as there may be different costs for the LGBTQ+ community when it comes to planning a family, there may be different considerations when it comes to navigating benefits or naming beneficiaries of certain insurance policies. When engaging with insurance representatives, make sure to have any lingering questions LGBTQ+ specific questions answered before signing.
Step 5: Protect Your Legacy
While there isn’t necessarily a need to draft estate planning documents differently from heterosexual spouses, LGBTQ+ couples should make an effort to review their existing estate plan. Whether documenting your wishes for the first time or simply reviewing, keep in mind the following estate planning tips for LGBTQ+ couples:
- Document your wishes with a will. Wills are extremely important for unmarried members of the LGBTQ+ community who are in committed relationships.
- Designate beneficiaries. Recording beneficiary designations is another critical step to ensure your wishes are executed.
- Prioritize end of life care. Additional documents to carry out your final wishes include Financial Power of Attorney, Health Care Power of Attorney, the HIPAA Privacy Authorization Form, and Health Care Directive.
- Utilize the unlimited marital deduction. Since the legalization of same-sex marriage by the Supreme Court, gay and lesbian couples can now enjoy the unlimited marital deduction for federal estate and gift taxes that many heterosexual married couples have benefited from for decades.
- Tie-up loose ends with children. LGBTQ+ parents have a unique set of estate planning concerns when it comes to children, especially when only one partner is the biological parent. A child, either born or adopted into a LGBTQ+ marriage, needs to be intentionally named throughout estate planning documents.
- Review real property titling. LGBTQ+ couples should review real estate documentation, especially for property purchased before marriage equality, to ensure ownership is listed according to the couple’s wishes.
Completing Your Financial Plan
Financial planning is essential to ensure you are meeting your goals across your lifetime. These goals can sometimes be more complex for members of LGBTQ+ community to achieve. To help navigate these intricacies, it’s smart for all couples – but especially LGBTQ+ couples – to work with skilled and supportive professionals who understand these unique challenges. Schedule a call with an advisor today to find out how we can partner with you to make sure your financial plan reflects your goals and values.