Older LGBTQ Americans Need to Get Real About Retirement
David Auten & John Schneider — Queer Money
MassMutual’s recent LGBTQ Financial Security Survey found that 70 percent of LGBTQ people, relative to 63 percent of the general population, attest to being behind on retirement savings. But no matter where you are with your retirement planning today, there are ways to get caught up.
Recently, we told you how to pay off your debts and grow your cash flow so you could start saving for a comfortable retirement. Here are a few more specific tools you can use if you’re nearing retirement age and ready to dig into the financial details of what those golden years will look like.
Social Security benefits
You contribute 6.2 percent of each paycheck (12.4 percent if you’re self-employed) toward the Social Security portion of the Federal Insurance Contribution Act tax. FICA creates a safety net to help you cover the cost of living and medical needs after you retire.
You can start collecting a reduced Social Security payment at 62 years old, and you’re eligible for a full payment at 66.
If you’re married, you may also benefit from your spouse’s Social Security. Current spouses and even some divorced couples (married 10 years or more) are eligible for spousal benefits through Social Security. Through the spousal benefit, you can either collect 100 percent of your Social Security benefits based on your lifetime earnings, or you can collect 50 percent of your spouse’s total benefits, depending on which is higher. Even if you’ve never worked a day, you’re still owed Social Security payments. And if your spouse worked longer or earned more over his or her lifetime, you may benefit more from your spouse’s Social Security contributions than your own. If your spouse passes away, you can keep collecting either your full Social Security benefits or your spouse’s, depending on which is the higher amount.
Social Security payments aren’t likely to cover all your costs of living. Currently, the average monthly payout for seniors is $1,360, according to The Motley Fool. But you should still include this income as part of your overall retirement plan.
You can create a “my Social Security account” through the Social Security Administration to find out what you’re currently owed and keep track of your progress.
The Internal Revenue Service implemented catch-up contribution limits for those over the age of 50 to help Americans entering their golden years without a lot of retirement savings. Through this, you can contribute more money pre-tax to your 401(k), 403(b), 457(b), or IRA than the limits that apply to younger folks. Even if you’ve diligently saved for retirement for many years, you can still make a mad dash to the finish during what is often prime-earning and lower-spending years.
The catch-up contribution limit is $6,000 for 2017, but if you’re contributing to multiple retirement vehicles, you may want to talk to your tax professional first. Some combinations, like contributing to your employer-sponsored 401(k) and an IRA, come with income limits that may reduce your ability to contribute pre-tax.
Retirement savings tax credit
Middle- to lower-income earners with an adjusted gross income of $31,000 a year for single filers or $62,000 a year for joint filers can also take advantage of the Retirement Savings Tax Credit. If you qualify, you can claim a tax credit between 10 to 50 percent of your retirement plan contribution, with a maximum of $2,000 per single filer or $4,000 for joint filers as of 2017.
Your adjusted gross income is your total gross income minus certain deductions. As long as your adjusted gross income qualifies and you meet other restrictions, like not being a full-time student, you can claim this credit at any age, year after year.
The Retirement Savings Tax Credit may lower your tax bill, letting you keep more of your money to invest in your retirement plan.
Contribute to a 457 retirement plan
If you work in a public service field as a government employee, teacher, health care worker, or nonprofit employee, you may qualify to contribute to a 457 retirement plan. This plan lets qualified workers contribute an additional $18,000, per 2017, toward their retirement portfolio.
To qualify, your employer must be considered a state or local government agency, or a tax-exempt organization under IRC 501(c)(3). Since many LGBTQ people gravitate toward careers in these sectors, this could be a valuable retirement tool.
Contributions to a 457 can be in addition to contributions to other retirement plans, such as 403(b)s and IRA accounts. Like Roth IRA contributions, 457-retirement plan contributions and earnings are both tax-deferred. So, a worker with access to a 403(b) plan, 457-plan, and a Roth IRA could, in theory, contribute as much as $41,500 if they’re under the age of 50 and up to $42,500 if they’re over the age of 50.
You don’t need to make a lot to save for retirement
It’s not about how much money we make. It’s about how much money we save and invest. Take, for example, Oseola McCarty, a former washerwoman from Hattiesburg, Mississippi. McCarty managed to save out of an income she largely earned in small sums and cash tips, building quite a nest egg over time.
Once she set aside what she’d need to continue her modest lifestyle for the rest of her life, in 1995 the 87-year-old was able to bequeath $150,000 (nearly $242,000 in today’s dollars) to the University of Southern Mississippi to create a scholarship program for African American students from the area. In 1995, she told The New York Times that instead of making big purchases or upgrading her lifestyle over the years, “I planned to do this. I planned it myself."
Planning for retirement is a struggle most people face, and many in the LGBTQ community are falling behind, but there are opportunities to be more prepared for retirement. We just need to know how they fit into our plan.