For parents of children with disabilities, the challenges of preparing for retirement and their child’s future are far higher than for families with healthy, high-functioning adults. Planning for your retirement while needing to secure the stability and basic needs of a child who will be dependent forever often feels impossible, according to the recent article “Planning for Your Retirement, and for a Child’s Special Needs, All at Once” from The New York Times.
Even under the best circumstances, where there’s plenty of money available and many hands to help, caring for an adult child with special needs is emotionally and physically challenging. As parents age, they must address their own needs and the needs of their adult dependent. Who will care for them, provide safe and comfortable housing and care for them when their parents no longer can?
Understanding the entire picture can be tricky, even for parents with the best intentions. First, they need to know how their retirement planning must be different than other families. Their investments need to be multi-generational to last for their lifetimes and their child’s lifetime. They can’t be too conservative because they require long-term growth.
In addition, special needs parents need to keep a certain amount of funds liquid and easily accessible for times when their child needs a new piece of expensive equipment immediately.
One of the parents will often leave the workforce to provide care or take a lower-paying position to be more available for care. This creates a double hit; the household budget is also reduced and strained by costs not covered by benefits or insurance. Paying for gas to drive to therapy appointments and day programs, buying supplies not covered by insurance, like adult diapers, waterproof bedding, compression garments to promote circulation, specialized diets, etc., adds up quickly.
Even with public health assistance, finding affordable housing is not easy. One adult may need supervised care in a group home, while others may need in-home care. However, the family home may need to be modified to accommodate their physical disabilities. With wait times lasting several years, many families feel they have no choice but to keep their family member at home.
Another challenge: if the parents want to downsize to a smaller house or move to a state with lower housing costs, they may not be able to do so. Most public benefits available to special needs people are administered through Medicaid at the state level. Moving to a state with a lower cost of housing may also mean losing access to the disabled individuals’ benefits or being placed at the end of the waiting list for services in a new state.
For disabled individuals, maintaining eligibility is a vital issue. Family members who name a disabled individual a beneficiary don’t understand how they jeopardize their access to public benefits. Any money intended for a disabled person must be held in a specialized financial instrument, such as a special needs trust.
The money in a special needs trust (SNT) may be used for quality-of-life enhancements like a cellphone, computer, better food, care providers, rent, and utilities, among other qualified expenses.
There are two main categories of SNTs: first-party trusts, created with assets belonging to the individual. Any money in this trust must reimburse the state for the cost of their care. Another is a third-party special needs trust, established and funded by someone else for the benefit of the disabled individual. These are typically funded by parents’ life insurance proceeds and second-to-die life insurance policies. Both parents are covered under it, and the policy pays out after the second spouse dies, providing a more affordable option than insuring both parents separately.
Reference: The New York Times (Aug. 27, 2022) “Planning for Your Retirement, and for a Child’s Special Needs, All at Once”