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.
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Boost savings as income grows. Disciplined savers continually look for ways to save more and there may be no better time than after receiving a raise or bonus. Workers who have access to a 401(k) or other defined contribution plan can save up to $18,000 annually. Even over a short time, those savings can quickly add up, especially with positive investment returns.
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Use the catch-up provision. Those who are age 50 or older save an additional $6,000 annually in a defined contribution plan for a total of $24,000. It’s a strategy that is employed more often after a participant pays off a mortgage or finishes paying college tuition bills.
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Work longer. Postponing retirement can have many financial benefits such as generating additional dollars for retirement savings and putting off the need to take Social Security. Many pre-retirees have already come to the conclusion that they will need to work longer. The good news is that many experienced workers may be in demand, especially those with hard-to-replace skills. The U.S. economy is expected to face a shortage of five million workers with the necessary education and training by 2020, according to a study from researchers at Georgetown University.
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Put off taking Social Security. Postponing Social Security at age 65 or later can boost future payments by 8 percent for every year the income is deferred until age 70, the Social Security Administration reports. Few investment strategies net such a return, never mind one with a guarantee.
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Work in retirement. A part-time job in retirement can provide additional income and help stretch savings. More than one-third of people who retired within the past five years say that employment is a current source of income, according to the 2014 MassMutual Hopes, Fears and Reality Study. While the number of people who worked in retirement declines with age, one in five of those who retired 10-15 years ago say they continue to work.
Your LGBTQ and other clients may not be able to take advantage of every strategy but even relying on a few can help increase their savings over the long run and may help them live more comfortably in retirement.
So if you have LGBTQ clients, they may be in need of a financial makeover, or at least some retirement savings and financial management counseling. Work closely with your financial services firm and give your LGBTQ clients the retirement eye.
E. Thomas Foster Jr. is head of strategic relationships for retirement plans for Massachusetts Mutual Life Insurance Co. (MassMutual).