Building a Solid Retirement Foundation

Winning the lottery is not a retirement strategy. Yet every year, one survey or another finds that a significant percentage of people say that’s their retirement plan. That may be a PR stunt, and the responses may be intended as a joke, particularly since the odds of hitting the lottery are something like one in 270 million, and the odds of needing money in retirement is a sure thing.

The point is, planning can be daunting for many people, particularly Millennials, but time is something you can’t joke away or hide from. Acknowledging that there are many expenses and that people are stretched thin, saving for retirement may become a lower priority, and in all cases, doing something no matter how small, is better than doing nothing. The point is to get started.

For LGBTQ+ people, retirement planning becomes more important. There may not be family members to provide care, and while there are more options for senior living (See our special section on that topic in this issue.), those are not cheap.

There are many models you can use to plan your savings. For years, financial planners talked about the “three-legged stool.” This is a metaphoric way of encouraging diversity, and if you’re employed one of the legs—defined benefit pensions—are not as common as they once were. Instead, those have been replaced by 401K plans—defined contribution plans. However, only about 51 percent of employers offer those. That’s still excellent compared to the 8 percent who use traditional pensions. If you’re self-employed, consider creating a SEP IRA plan. You’ll receive a pre-tax deduction now and pay taxes on the money when you withdraw it, presumably at a time when you’re in a lower tax bracket. Even so, you’ll still need the other two legs of the stool for a solid program.

Social Security benefits, the second leg, replace about 40 percent of the average worker’s salary, according to the Bureau of Labor Statistics. What’s more, under current conditions, The U.S. Department of Treasury says the Social Security trust fund is expected to deplete its reserves by 2034 and will be able to fund approximately 77 percent of benefits after that.

Creating the final leg of the stool is where you have the most flexibility and choice and where you’ll need a thought-out strategy. One option is to purchase a lifetime income annuity, essentially creating your own pension. Though these are not bought with pre-tax dollars, you only pay taxes when you withdraw, which can facilitate accrual of your principal. Many annuities also die with you so this is where diversification comes in, particularly if you’re planning on leaving an estate.

Life insurance is also an option. Yes, life insurance. Although the primary purpose of life insurance is to deliver death benefit protection, many permanent life policies accumulate cash value. If your need for protection decreases over time, you can borrow against this cash value—tax-free in most cases—and use the money to supplement your retirement lifestyle. That loan will accrue interest and is paid back on your death, which will decrease the death benefit of the policy.

No two people—and no two families—are alike. However, one concern shared by many LGBTQ+ individuals is that they want to have enough money not to be a burden to anyone. After that, you’ll have your own objectives. The important thing is to create a plan for yourself that’s reflects your goals and desires and will allow you to enable—and afford—the lifestyle you want in retirement. Whether you want to “die broke,” as some do, or if you want to be able to leave inheritances, take the time to figure out what you want and then make a plan. And don’t buy into the myth that “it’s too late.” Start where you are and build from there.

It’s also a good idea to work with a financial planner who can help you explore options—and who understands the special challenges of the LGBTQ+ community. For instance, a survey by the credit agency Experian found that 62 percent of LGBTQ+ respondents said that they had experience financial challenges based on their identity. There are other issues as well, such as how to protect a partner, if you choose not to marry. Don’t be shy when you interview financial planners. Ask if they’ve worked with LGBTQ+ clients, same-sex couples, trans of non-binary individuals. Find out if they are aware of some of the special challenges our communities might face. Remember, this is—or should be—a very personal conversation and relationship, so finding someone with whom you feel comfortable is important. And don’t be afraid to shop around.

Remember, you’re building this three-legged stool to support yourself. Make sure it fits you. Oh, and if you still want to play the lottery, go ahead…just for fun. But place your major bets on yourself and your plan.