by Denise Appleby, CISP, CRC, CRPS, CRSP, APA
Most individuals must bob and weave through the landmine of retirement rules and regulations, and hope that they avoid any tripwires that could “blow up” their retirement accounts. For same-sex couples, the tripwires appear more frequently. As such, same-sex couples must take extra precautions to ensure that their retirement programs are failsafe. The following are some tips on how same-sex couples can effectively manage retirement planning.
1.Check Your Beneficiary Designation Form
If you want your current partner to be the beneficiary of your retirement account, check to make sure your beneficiary form has been updated to properly reflect your wishes. Most retirement accounts include default provisions for determining who will be the beneficiary of the account, in the event that the account owner fails to submit a beneficiary designation form or if the named beneficiary predeceases the account owner. In most cases, the de facto beneficiary is the retirement account owner’s spouse. Even if you are married to your same-sex partner, he or she may not be your de facto beneficiary as most plan document’s definition of ‘spouse’ is consistent with the Federal Defense of Marriage Act (DOMA). For more on this see the article: Same-sex Couples: When A Spouse is Not A Spouse (for Retirement Accounts)
2.Get a Divorce or Spousal Consent if You are ‘Legally” Married to Someone else
If you are ‘legally’ married to someone of the opposite sex because your divorce has not been finalized, that person could still be your beneficiary by default, regardless any change you make on your beneficiary form. This could be the case if your assets are in a qualified plan or ERISA – 403(b) account, or if you own an IRA and reside in a community or marital property state that has not legalized same-sex marriage. If you find yourself in such a situation, consider asking your wife/husband to provide spousal-consent which will enable you to name your partner as your beneficiary. This is a necessary precaution even if you plan to divorce your spouse, as it will help to ensure that your partner is treated as your beneficiary if you should die before the divorce is effective.
3.Hire Your Spouse or Partner
Under the spousal IRA provision, individuals who are considered ‘married’ under DOMA are able to fund the IRAs of their spouses with spousal IRA contributions, if their spouses have little or no income. Same-sex married couples are not eligible for this benefit, as they are not considered married for federal law purposes, even though they might be considered married under state law. For those persons who have their own businesses, this limitation can be overcome by hiring your spouse as a salaried employees. The spouse’s income from the business can then be used to fund an IRA. If the business adopts an employer sponsored retirement plan, the spouse could also receive a contribution under that plan if he or she meets the eligibility requirements.
4.Consider the Lack of Social Security Benefits for Spouses
Couples who are considered married under DOMA are eligible for certain social security benefits, and as such, often consider benefits for which a surviving spouse would be eligible when planning for retirement. These benefits include the following, and are available to a spouse even if he or she has never contributed to social security:
oThe eligibility to collect social security upon reaching age 62 or later
oQualifying for Medicare at age 65, based on his spouse’s record
oThe eligibility to receive 50% of his spouse’s retirement benefits , if he starts receiving social security benefits at full retirement age
oIf he is caring for his spouse’s child, he can receive the 50% benefit regardless of age, until the child reaches age 16
oA one-time payment of $255 is payable to the surviving spouse
These benefits are not available to same-sex couples. As a result, you will need to provide alternate solutions if you had planned to include those benefits in your retirement projections. Alternate solutions can include long-term care insurance and suitable types of life insurance.
5.Consider Health Care Costs
As one gets older, the likelihood of the need for healthcare and the associated costs increases. Correspondingly, so does the need for health insurance. For most married couples with both spouses working and eligible for employer-provided healthcare benefits, the better of the two plans is usually chosen to cover the couple and their children, if any. If only one spouse works, then the non-working spouse is covered under the working spouse’s healthcare plan. However, spousal coverage under employer sponsored healthcare plans is usually limited to spouses who are considered married under DOMA.
An extended or debilitating illness can wipe out a lifetime of retirement savings in a fraction of the time it took to accumulate the savings. As such, if your employer sponsored health-coverage does not include your same-sex spouse, it may be prudent to purchase additional health coverage for your spouse. Another option is to obtain coverage for your family and opt out of your employer sponsored healthcare plan, if it is more economical to do so than to maintain both.
These are just some of the areas which same-sex couples should consider when planning for retirement. On the surface, it may seem that one financial plan is suitable for everyone but nothing could be further from the truth. In many cases, families that appear to be the same on the surface will often have different needs based on their specific circumstances. Working with a financial planner who either specializes (or has extensive experience) in the area of retirement and financial planning for same-sex couples may provide viable solutions, especially in areas that you may have overlooked. For more on planning for same-ex couples, see Same Sex Couples: When A Spouse is Not A Spouse (for Retirement Accounts)