Advisers help domestic partners plan for retirement

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Domestic partners face unique challenges in their retirement planning, including steep upfront costs to create retirement income options that come more easily for married couples.

They’ll have to set up financial plans that replicate Social Security benefits. They will need trusts and estate plans if they have children. They’ll pay more, on average, than married couples to make these plans. And if they move to a different state, they’ll have to start all over again.

“When a married couple comes through the door, their marriage license gives them 1,300 benefits and rights and protections,” said Bobby Foster, financial consultant with Cavanaugh, Meares & Foster Wealth Management Group/ Wells Fargo Advisors. Foster is also an Accredited Domestic Partnership Advisor.

Domestic partners, he said, must figure out how to recreate the financial benefits of married couples so they can sail comfortably into their golden years.

A recent survey by Richard Day Research for Wells Fargo of lesbian, gay, bisexual and transgender investors showed that they may already be aware of their financial planning challenges and are looking ahead. Sixty-one percent of LGBT non-retirees surveyed said they felt confident they would have enough money saved by the time they retired to live the lifestyle they want throughout their retirement. That’s higher than the 53 percent of the general population who feel that same confidence.

“As a financial planner, I’m delighted the national dialogue focuses on these tangible issues,” Foster said.

Domestic partners include homosexual couples who cannot legally marry, heterosexual couples who choose not to marry and siblings who care for one another, especially in older age.

These couples need to consider what will happen in the event of separation or death. There will be no Social Security benefits for the surviving partner, no widow benefits, no divorce benefits and no spousal disability benefits.

“The first thing I tell domestic partners, whether they are the same gender or not, is this is going to cost you,” Foster said. “It is going to cost you up-front and overall to begin to do some deeper planning that can replicate some of these benefits.”

Domestic partners might consider income and retirement plans that replicate Social Security, meaning they could create a retirement fund that is paid out through monthly installments, Foster said. In the LGBT survey, 84 percent of respondents said they believe they should get a fixed monthly payment from their retirement account when they retire.

But retirement funds don’t function like pension plans, Foster said.

“We have solutions to structure the plan to generate payments,” he said.

In 2009, Wells Fargo took the lead in seeking the ADPA financial planning designation through the College for Financial Planning. That year the college created the Accredited Domestic Partnership Advisor program, designed specifically for financial planners to understand the laws and regulations under which domestic partners fall, including wealth transfer, taxation, retirement planning and estate planning. For example, domestic partners cannot take advantage of the estate tax marital deduction. If one partner adds the other to property titles, they face the “gift tax.”

Every family will have different financial and life goals, said Kyle Young, Wells Fargo financial advisor and vice president investment officer. They all need every financial opportunity explored, he said.

“It is especially important for LGBT investors to find financial advisers who are acutely aware of the challenges, laws and regulations that impact their investment planning needs,” Young said.

For one year, Wells Fargo had exclusive access to the ADPA training. In November 2010, the college opened the training to all financial planners.

“It’s a program we believe in,” said Christopher Allen, College for Financial Planning spokesman. Last year, 68 people nationwide earned the ADPA designation. So far this year, 53 financial planners have completed the ADPA program.

“It’s one of those things where we have seen the popularity explode,” Allen said. “It’s still a niche market — but, it’s growing and it’s growing fast.”

Sometimes domestic partners are unaware of the extra steps they need to take to make their retirement plans, including issues of wealth transfer and taxation, Foster said. About a quarter of the LGBT respondents in the Wells Fargo survey said they have a detailed written plan for their finances and retirement and about 30 percent said they had never even thought about it.

“It is a very challenging environment — I’m not certain folks in the LBGT community even understand the challenge,” Foster said. “I have this feeling in my gut that if we could get this in front of people, we could foster a lot of understanding.”

LGBT retirement goals

52 percent believe they will be able to retire by age 65.

48 percent believe same-sex marriage will be recognized nationwide by the time they are 65.

18 percent of lesbians cite estate planning and tax benefits as the most important reason to legalize gay marriage; 15 percent of gay men agree.

61 percent of LGBT non-retirees are confident they will save enough money to live the lifestyle they want throughout retirement (higher than national average for 53 percent).

25 percent say their most important day-to-day financial concern is being able to save for retirement.

Source: Wells Fargo Retirement and Richard Day Research online survey of adults ages 25-75 who identified themselves as lesbian, gay bisexual or transgender