The retirement guide for LGBT financial planning

More than 3 million LGBT Americans are currently over age 50, and that number is estimated to more than double over the next decade as baby boomers ride in on a rainbow-hued silver wave.

For many gays, lesbians, bisexuals, transgender, and queers, the stereotypical idea of retirement appears to not be that appealing. Gay couples are not taking up golf and spending time with the grandkids at the same pace as their heterosexual counterparts. My West Hollywood financial planning clients are much more likely to retire in Los Angeles or Palm Springs than a senior community in Florida or Arizona.

There is a retirement planning crisis across the spectrum in America, but many in the LGBT community are especially at risk of not being able to maintain their standard of living in retirement. Homophobia can hurt the quality of your retirement, whether your net worth is tens of millions of dollars or a lot less.

LGBT Americans Earn Less and Are Behind When It Comes to Saving for a Gay Retirement

There are conflicting reports on what I call the "Gay Pay Gap." According to the US Department of the Treasury, on average, gay married couples earn more than lesbian couples who earn more than opposite-sex couples. This report doesn't necessarily tell the whole story. Upon further digging, it appears that lesbian or gay couples were just more likely to be in a dual-income household. A lesbian couple is still likely penalized by the gender pay gap, but if both spouses work full-time, they appear to make more than an opposite-sex couple where both spouses are not necessarily working full-time.

When you break it down, heterosexual individuals make more, on average, than LGBT Americans for equal work. This will also mean it is harder for LGBT individuals to participate in wealth-building activities like properly funding retirement accounts, buying homes, and investing for the future. It may also take longer for LGBT people to pay off student loans. Moreover, many LGBT students take on more debt after receiving less support from their families after coming out.

How Can LGBT Americans Address the Gay Retirement Gap?

I count myself extremely fortunate that at 22 years old, a gay mentor sat down with me and helped me open my first Roth IRA. Before I even had a job lined up, I committed to contributing a whopping $25, per month. Starting small and early, I built an investing habit that I have grown substantially over time.

Not everyone is so lucky to have someone prod them to start saving, but if you are reading this, regardless of your age, start investing for the future. Your retirement date will be here before you know it. Even a small amount each month can add up if given enough time to let compound interest work its magic. Just $25, per month, could grow to more than $100,000 by the time you reach age 70 (assuming you start at age 22 and earn 10%, per year, on average).

Just so you can see the value of compound interest, if you contributed $6000 per year to a ROTH IRA and earned 10% per year on your investments, you could have over $5.7 million dollars at age 70! Start this process at age 40, and your contributions grow to just $986,000.

Make sure you get every cent of an employer's match for your workplace 401(k). In many cases, this can be like getting a 3-4% raise – tax-deferred. It may also add 50% or even double your retirement savings over time.

LGBT Americans Are Responsible for Caring for Other Family Members

Caring for aging parents can easily be a full-time job. This responsibility falls on the shoulders of LGBT Americans at a somewhat surprising rate. I guess in some cases, it is assumed a gay couple with no children will have more time and flexibility to care for aging family members compared to a parent trying to raise their children. In many cases, the LGBT family member is the only child who parents trust to actually do the right thing.

To be clear, I am aware many LGBT people have children, but at lower rates than heterosexual couples. According to one study, LGBT Americans are less likely to have dependent offspring than heterosexuals (37% vs. 43%). This gap is much smaller than I would have guessed. Breaking this down further, just 19% of gay men have financially dependent children, while 28% of lesbians report having financially dependent children.

The study also shows that more of the responsibility of caring for aging parents (and other family members) falls on members of the LGBT Community. Twenty-two percent of LGBT folks expect to provide support for parents compared to just 15% of heterosexual Americans. In reality, the number of people who have to provide some support for aging parents will likely be much higher than these percentages whether you are gay, straight, or otherwise.

Caring for aging parents can stall careers, limit retirement savings as gay workers near retirement, or in the worst-case scenarios, bankruptcy after the parent passes.

Who Will Care for LGBT Retirees?

While many in the LGBT community may be faced with caring for their parents, a vast majority of us will not have children to provide the same type of care for us as we age. We are also more likely to be estranged from homophobic family members or just have no family members left.

I know many of my friends and clients are expecting to receive care from, or give care to, their chosen families (friends). I love this idea in theory, but most of the time, our friends are near our ages, and we all may end up needing care around the same time. Two ninety-year-olds may be able to keep an eye on each other, but full-time care may be too much to undertake for either person.

Research has shown that LGBT retirees are more likely than our straight counterparts to be providing care to our friends as we age. According to SAGE, a reported 21% of gay retirees provide care for an elderly friend, compared to just 6% of heterosexual elders.

The LGBT community is also less likely to be prepared to cover the astronomical cost of long-term care. Most people who purchase LTC coverage are (straight) married couples; it follows that so far, the LGBT community, much of which is single, is less covered than the population as a whole. Especially for older gay couples, who were married later in life, LTC coverage may not be available, or it is likely to be cost prohibitive.

But there is good news for married gay couples. The calculations used to qualify for Medicare coverage are often more advantageous for a married pair versus two "single" individuals. Plus, all married couples will have fewer hurdles to jump through to avoid tax problems when one spouse is paying for long-term care for the other same-sex spouse.

Changing LGBT Families and Retirement

Family planning and retirement planning for the LGBT community is changing. The experience of being gay in America will be different for a child born today compared with someone who is already a gay retiree. Hopefully, the opportunities for fabulous LGBT eldercare will grow in the coming years. More people in the LGBT community will desire to have children and face less homophobia along the way.

Growing LGBT families can also be a new financial challenge. The cost of raising children is already a budget buster for many families. Throw in the upfront cost of adoption or surrogacy, and LGBT families face an additional financial hurdle when starting a family.

LGBT parents tend to have children later in life. I know many people who have children who won't be graduating high school before their parents reach their full retirement age. With many in the LGBT community already playing catch-up regarding retirement savings, this can put many gay parents even further behind the eight ball.

I don't bring this up to try and discourage anyone from having children. I do so because I want to encourage people to be more proactive when it comes to getting their financial houses in order. Make a point to save more aggressively for retirement, and begin investing earlier for your gay retirement to free up more money to start and raise your family when that time comes. Children are amazing, but raising them is not cheap.

LGBT Americans Are Less Confident Financially

While things have improved since I became a financial planner 18 years ago, LGBT households are still underserved by the overall financial industry. Beyond that, I have met a high number of people who have been refused service by financial advisors who didn't approve of their "lifestyles." Why entrust your future happiness with someone who doesn't even think you deserve the right to be married or judges you while picking your pockets?

Members of the LGBT community are less likely to work with a financial advisor. This can lead to missed opportunities for financial planning, tax planning, estate planning, and just good old financial guidance. This (along with an LGBT pay gap) can lead many gay people to feel more pessimistic about their financial futures.

The good news is that more financial advisors are willing to come out than ever before. This alone should make it easier to find the best gay financial planner for your personal financial needs.

Challenges to the Financial Security of LGBT Seniors

When you pair decades of institutional homophobia with gays flocking to high-cost-of-living cities, the AIDS crisis, and estrangement from families, among other things, you have a recipe for higher levels of financial insecurity in the LGBT community. The LGBT pay gap has also stunted the careers and wealth accumulation of many in the LGBT community.

Less retirement savings translates into smaller retirement incomes. Also, smaller incomes throughout their careers means smaller Social Security benefits for members of the LGBT community.

Prior to marriage equality, many pension plans did not allow for the full array of retirement income options available to legally married couples. This may have caused many gay retirees to opt for the single-life option on their pension benefits. This means, if the spouse with a pension passes first, the second spouse could see their standard of living drop dramatically.

This article was written by David Rae from Forbes and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to legal@industrydive.com.

The contents in this article are being provided for educational and informational purposes only. The information and comments are not the views or opinions of Union Bank, its subsidiaries or affiliates.