The cable TV show, Queer Eye for the Straight Guy, relied on a panel of gay men to provide fashion tips for straight men, performing a “makeover” to revamp the guy’s wardrobe, redecorating his home and offering advice on a host of personal topics. The show proved a smash hit, not to mention a rescue mission for the seriously unstylish.
But many LGBTQ folks could use a makeover of their own, especially when it comes to retirement savings and other financial issues, preferably from a financial advisor, through a workplace retirement plan’s educational resources or both. Let’s call the makeover a “retirement eye for the queer guy—and gal.”
A makeover may be in order because members of the LGBTQ community are more likely to say they are behind on saving for retirement, feel less than financially secure and struggle more with financial emergencies than other middle-income Americans, according to the MassMutual LGBTQ Middle American Financial Security Study. The study polled 500 respondents who identified themselves as lesbian, gay, bisexual, transgender, queer or questioning (LGBTQ) ages 25-65 who earned annual household incomes of between $35,000 and $150,000.
The LGBTQ study pinpointed a wide range of financial issues, including an inability to save, lack of preparation for retirement, struggling to make ends meet, and a need for more education about retirement savings and financial issues. It’s a widespread problem that advisors need to be aware of, whether speaking with wealth management clients or educating participants in a 401(k) or other retirement savings plan.
More than ever, retirement saving and financial planning are not a one-size-fits-all endeavor. Different households have different priorities and needs. In the case of LGBTQ people you may want to start any initial discussion by determining their relative knowledge and comfort with managing money, saving and investing. You may need to discuss how to help establish good financial habits as part of any financial and investment recommendations you make.
When a client or retirement plan participant acknowledges that he or she is behind in saving for retirement, there is sometimes a concern that the person may feel it’s an impossible task to reach his or her goals. It’s easy to feel overwhelmed and simply give up. Advisors can help by reinforcing that not all is lost. Adopting the right attitude about saving and investing often starts with a series of smaller steps that eventually lead to greater financial security.
Whether the person is struggling to save because of a relatively low income or is getting started in later life, there are strategies that can be employed to help. What strategy or approach is appropriate depends upon the person’s income, financial obligations and time line to retirement:
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Save pre-tax. Contributing pre-tax dollars to a 401(k) or similar plan can reduce a plan participant’s taxable income and along with it, his or her tax liability. Doing so can make saving more affordable. For those who have more money at their disposal, saving on a pre-tax basis may free up additional dollars for savings in another vehicle such as an IRA, mutual fund, annuity or other financial vehicle.
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Take advantage of any employer match. While not all employers match employee contributions, many do. If someone cannot afford to contribute the maximum or close to it, he or she should consider saving enough to secure the available maximum in matching contributions. A 3 percent match on a 6 percent salary contribution yields an immediate 50 percent return, a gain most investments are hard-pressed to match.
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Qualify for the Saver’s Credit. For those who have relatively low incomes and feel they cannot afford to save for retirement, the federal government’s saver’s credit may be a proverbial lifesaver. For the 2017 tax year, a married couple that files their taxes jointly and has an AGI of not more than $37,000 can obtain a credit of 50 percent of their retirement savings, according to the IRS. The credit drops to 10 percent of retirement contributions for a married couple filing jointly with an AGI of $40,001-$62,000 and phases out completely for incomes above the latter threshold.