LGBTQ+ retirement planning: What you need to know

Retirement is a top financial concern for LGBTQ+ individuals. These steps can help guide your retirement planning.  

A top-ranked financial concern for the LGBTQ+ community is saving for retirement.¹ As a group that often doesn’t have children, many in the LGBTQ+ community must plan for taking care of themselves in their later years. And they often miss out on family support later in life, including inherited wealth.

“Planning for retirement can be especially important for LGBTQ+ individuals,” says Christian Tran, a Wealth Management Advisor for U.S. Bancorp Investments. “Even small steps can accelerate your savings and build your confidence when it comes to planning for retirement and making sure your needs are covered.”

Whether you’re just getting started on your retirement planning journey or you’d like to revisit your saving strategy, here are steps to ensure you know how much to save, where to save it, and what to consider when you’re ready to tap your retirement savings.

1. Determine your financial needs in retirement

Experts suggest that you budget to spend up to 80% of your pre-retirement income during your retirement years.² That means if, pre-retirement, you’re earning a salary of $100,000, you’ll need to budget $80,000 per year in savings and income (at a minimum) during retirement. This 80% rule is a good starting point to estimate your retirement savings goals.

Your anticipated retirement lifestyle could make the 80% figure increase or decrease. If you plan on traveling significantly or buying a second home, your savings needs might increase. However, if you plan on downsizing in retirement or working part-time, the amount you’ll need to save may decrease.

2. Set a retirement savings goal

To set a retirement savings goal, envision the life you want and assign an annual cost to each expense. From there, you can add up expenses and multiply that figure by the number of years you expect to be retired.

For example, if you estimate your annual expenses during retirement to be $45,000 and you plan on being retired for 20 years, you can set a basic savings goal of $900,000.

If that figure seems daunting, don’t sweat it. Assuming that you commit to investing money each month and it earns roughly a 10% rate of return (which is the long-term average rate of return for the S&P 500 through 2022³), there are several ways to hit that number. For example, if you begin investing $162 per month at age 25, you could have $900,000 if you retire at age 65. If you start at 30, you’ll need to save $265 per month to achieve the same amount. And if you start at 35, the monthly figure is $437. 

Creating a retirement savings habit early on can help you stay on track toward retirement saving. No matter how much you have to save, small savings today can help you reap the rewards of compound interest and get you closer to your retirement savings goals.

3. Don’t forget to account for Social Security during retirement

Since every paycheck has a deduction for Social Security, you’ll want to account for this income when planning your retirement savings.

To help you estimate your Social Security benefits, you can use the Social Security Administration’s online benefits calculator. The calculator will also help you see what your benefits look like if you start receiving benefits at age 62 or if you wait until age 70 to receive the maximum possible benefit.

Once you’ve estimated your benefits, you can adjust your retirement savings goals accordingly.

4. Maximize your savings

When you’ve established a savings goal, you need to decide where to put your retirement savings. The most common options are workplace retirement plans, individual retirement plans, and taxable investment accounts.

• If you have the option to participate in a workplace retirement plan, don’t sleep on the chance. This is doubly true if your employer offers a match of any kind on the money you put into their plan. Most 401(k)s and 403(b)s allow you to save an annual maximum of $22,500 (plus an additional $7,500 for those 50 and up) in 2023, which means an employer plan can help you put a big annual dent in your savings goals.
• Individual retirement plans, or IRAs, are retirement accounts that receive special treatment from the IRS. Depending on your income and employment status, there are several different types of IRAs you can open, including traditional, Roth or self-employed IRAs called SEP IRAs. Money in an IRA grows tax-deferred, and withdrawals are limited until you reach retirement age. The annual contribution limit for traditional and Roth IRAs in tax year 2023 is $6,500 (plus an extra $1,000 for those 50 and up).
  

Knowing the difference between employer-sponsored plans like 401(k)s and IRAs can help you decide where and how much to save in each type of account available. Whatever retirement vehicle you choose to save in, the key is to make saving a habit. Automated deposits, either through payroll deductions or scheduled on payday, can help keep you on track for your goals.

5. Consider additional retirement financial expenses

Once you've set a goal and started saving, don’t forget to read up on other expenses that come along with retirement. Life insurance, long-term care insurance and Medicare are among those you'll want to keep in mind.

• Life insurance can help provide for your family and heirs. If you have a policy in place before you retire, don’t forget to factor the premiums into your monthly expenses.
• Long-term care insurance is specifically designed to provide for long-term medical care needs. While premiums aren’t inexpensive, they might be worthwhile to help protect your retirement savings from being spent on unforeseen medical costs.
• Finally, you pay Medicare taxes right alongside your Social Security taxes every month. You’ll become eligible for healthcare coverage through Medicare when you reach age 65. This guide can help you understand the different parts of Medicare insurance and what you might expect to pay each month.

6. Ask for trusted retirement guidance along the way

Remember, retirement planning isn’t something you have to do alone.

“Having a financial professional who identifies as LGBTQ+ or who has experience working with LGBTQ+ clients can walk you through money issues, including retirement planning, that might be sensitive,” Tran says. “Building a relationship with a trusted advisor who understands your financial circumstances also creates one less barrier between you and your goals.”

Wherever you are in your retirement planning process, there are active steps you can take to take control of your finances today. The sooner you begin, the longer you have to save.

Learn how we can help you plan and save for retirement.