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The LGBTQ+ community can be under-considered by the financial services sector, yet many facets of this community are unique in terms of financial planning needs. That’s why it’s especially important to understand the many financial complexities that LGBTQ+ individuals may face.
Research from Experian shows that the majority (62%) of LGBTQ+ individuals say they have faced financial challenges due to their gender identity or orientation, while almost half (44%) report they have difficulty saving money and only 11% save for retirement each month. Meanwhile, the Human Rights Campaign Foundation also found that LGBTQ people are more likely than the general population to feel their personal finances are worse now than they were a year ago. Yet a 2021 E*TRADE survey also found that more than two in five (43%) LGBTQ investors plan to make no changes to their portfolio in the next six months.
How can LGBTQ+ individuals thrive financially? One way to take control of your financial wellness is to examine your choices around relationships, family planning, and retirement.
Tying the knot
Marriage isn’t everyone’s goal, but Pew Research found that a majority of same-sex cohabitating couples have married since 2017. When LGBTQ+ couples do decide to tie the knot, it’s important to understand how marriage affects matters like eligibility for workplace benefits, estate planning and gifting strategies, adoption and family planning, income tax filing, healthcare coverage, social security spousal benefits, and retirement plan spousal benefits.
It may be a good idea to consult with a tax adviser about your unique situation. For example, newly married couples filing a joint tax return might qualify for deductions and exclusions that reduce their tax bill—or they might get a so-called “marriage penalty” tax increase if their combined income puts them in a higher tax bracket. And when it comes to estate planning, married couples can enjoy U.S. federal estate tax portability.
Some couples have considered other ways to help protect their legacy and loved ones, such as a domestic partnership or cohabitation agreement. While the law does not recognize domestic partners as family, some workplaces and companies do—check with your employer. Rules on domestic partnerships and civil unions vary by state, but the IRS requires domestic partners to file taxes individually—and if there are children, you’ll need to check on your local laws to determine whether you qualify for deductions. State laws may also affect whether you can extend healthcare coverage or community property to a partner, and estate planning will look different than in a marriage.
Similarly, a cohabitation agreement can formalize partnerships and may also offer some room to customize your legal arrangements while covering standard ground like establishing a financial baseline and detailing how your property, debt, and children will be cared for in the event of a separation.
Building modern families
Establishing an LGBTQ+ family can be complex. Your relationship status and where you live may affect your choices, but foster care, adoption, assisted reproduction, and surrogacy all come with unique legal and financial considerations.
Adoptions can be domestic or international, open or closed, and with public or private agencies. Prospective parents must juggle questions around tax credits, legal agreements, and money—The Balance estimates the average cost of adoption fees at around $40,000. Yet assisted reproduction through cryopreservation, in vitro fertilization, and surrogacy can be even more expensive at $60,000–$150,000, according to Surrogate.com.
LGBTQ+ families will also want to budget for legal services to help navigate through the adoption or assisted reproduction process. Laws will again vary state to state, and unmarried co-parents may not automatically receive the same rights as married parents. There’s a lot to think about and a lot to work through, but it’s doable with the right support system.
Unique financial planning needs
Saving for retirement is a challenge for many of us, but the LGBTQ+ community faces some unique considerations. As Forbes Advisor notes, discrimination and inequality have taken a toll on many LGBTQ+ retirees’ ability to save for retirement. But, things are looking brighter: In a 2021 E*TRADE study, more than four in five (87%) LGBTQ investors said they are confident they are saving enough to enjoy the retirement they would like.
It’s key to start planning for retirement as soon as possible. Think through when you want to retire, who you want to provide for, and what your ideal retirement situation might look like. It’s also helpful to connect with a Financial Advisor to determine how much you’ll need to save: In 2020, the national average monthlycost for a private room in a nursing facility was $8,121, according to RetirementLiving. Resources like the Gay and Lesbian Medical Associations or the National Register of Health Service Providers in Psychology can also help pinpoint LGBTQ-friendly care providers.
Along with preparing financially, it’s important to assemble important legal documentation, like establishing a healthcare proxy or healthcare directives. It’s also worthwhile to think through the possibility of providing long-term care for a loved one. AARP has reported that 28% of family caregivers stop saving, 23% take on more debt, and 22% use up personal short-term savings. If you believe you will have caregiving responsibilities, start the conversation early.
Taking pride in financial wellness
Pride month began with an uprising against discrimination at Stonewall, while Pride month 2020 ushered in a historic Supreme Court decision forbidding job discrimination on the basis of sexual orientation or transgender status. Yet even with federal protections, Forbes Advisor notes that systemic forces and life milestones can still have a significant impact on LGBTQ+ financial well-being today.
As Pride month celebrates the historic twists, turns, and triumphs the LGBTQ+ community has won along the road to where we are today, it’s also a valuable time to advocate for important next steps that can help bring our community even greater equality, opportunity, and wellness—beginning with your own wallet.
Jon Jensen is executive director for product management and D&I committee member, Morgan Stanley at Work.
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