The New York Times recently an article calculating the average costs incurred by same sex couples when compared to their heterosexual counterparts and found that an average same-sex couple will end up paying anywhere from $30,000 to nearly $212,000 over a lifetime more for health insurance, taxes, social security, etc. One of the biggest problems for same-sex couples is when one member begins drawing Social Security, his or her spouse is not entitled to receiving spousal benefits. In heterosexual partnerships, a spouse can receive up to 50% of Social Security benefits while his or her spouse is alive and when the spouse dies, the surviving member of the couple can receive the full amount of the benefit instead of his or her own (if the spouse’s payout is larger).
Unfortunately, even though same-sex marriage has been legalized in a number of states, this has no bearing on a couple’s ability to be fully financially intertwined in the way married, heterosexual couples are. Regulations pertaining to Social Security and taxes are managed at the level of the Federal Government, which means that until the Supreme Court rules same-sex marriage as constitutional, same-sex couples are stuck trying to find loopholes for the basic economic structures that married, heterosexual couples have come to depend on. Nevertheless, there are a few things that same-sex couples can do to ensure that their assets remain with their partners.
First, couples should make sure that their partner is listed as the primary beneficiary on any and all financial accounts. This means that all of these accounts will automatically pass to the surviving partner if one person dies. If an individual does not name a beneficiary, the state determines who receives the assets.
Second, when considering retirement options, same sex couples should analyze the options available in order to maximize either payouts or to find ways to provide a partner with as much of your earnings as possible.
When setting up a retirement plan with an employer, the best thing to do is to have a steady stream of retirement income. Another retirement option is to use a Roth IRA, instead of a traditional IRA, which is taxed differently during retirement and after its owner dies. As long as a partner is named as the primary beneficiary on a Roth IRA, Roth 401(k) or Roth 403(b), the money can go to a partner as tax-free earnings.
Finally, life insurance is another way to work around discriminatory Social Security policies. This is one of the best ways to make sure that a partner will have some assets upon the other’s death and it is a way to make up for the fact that partners in a same-sex couple will not receive spousal death benefits. Additionally, life insurance comes through as a tax-free income to the surviving partner. It is a good idea for same-sex couples to take out a larger policy in order to compensate for lost spousal benefits and tax breaks that heterosexual couples receive. Additionally, upon the death of a spouse, the surviving partner in a same-sex relationship may have more taxes and expenses to manage than a heterosexual person in a comparable situation.
Although it is extremely unfortunate and unfair that same-sex couples don’t receive the same financial benefits of heterosexual relationships, it is important to remain aware of the financial issues and be prepared for the worst so that a partner does not have to deal with not only the death of a spouse, but also a mountain of bills and a decreased standard of living. Hopefully soon, couples will receive all the same benefits that heterosexual couples do, but until that day comes, couples can use these techniques to make the best of a bad situation.