CMP Financial Planning

Retirement Planning For Three


The initial planning energies of special needs families are often on hiring an attorney to draft necessary estate planning documents (e.g., wills, trusts).  Developing a solid financial plan for such families is equally important.  A comprehensive financial plan takes into account both the needs of the individual and the goals of the family members. While the estate plans create the legal documents by which the goals of the family and individual are addressed, the financial plan ensures that enough resources exist to meet each of these goals. This article discusses what issues should be considered in putting together a special needs financial plan.

Financial planning for a typical family often starts with the retirement goals of the parents.  Models or projections are created to determine what savings and investments are necessary to achieve these goals in retirement.  Special needs financial planning is similar, except that the plan stretches beyond the retirement goals of the married couple to include the goals of the adult child with a disability.  The overall special needs financial plan can be thought of as two separate plans: one for the parents and one for the adult child.  The attached diagram shows the potential financial inflows and outflows of both plans and how they are connected through the estate or Special Needs Trust (SNT) that was established for the child with a disability.   Planning-Diagram-1.pdf (183 downloads)

The retirement plan for the special needs family is similar to those of typical families.   They both take into account the current assets and future income of the family members in order to meet future expenses incurred during retirement.     Retirement expenses of the special needs family may go up to help the adult child live independently.   On the other hand, retirement income will be increased for many families when the individual moves from Supplemental Security Income (SSI) to Social Security Disability (SSDI).  The individual will qualify for SSDI as soon as one of the parents begins taking Social Security.  Another key consideration for special needs families is ensuring that at death sufficient assets are left in the estate to fund the individual’s needs throughout his or her lifetime.

Increasingly, individuals with disabilities have a life expectancy as long as the general population.  In terms of the financial plan for the adult child with disabilities, this means that the financial resources required to provide for this adult child will need to last an additional 30 to 40 years after the death of the parents. In the child’s plan, the family will want to factor in some amount of income from public assistance programs, such as Social Security and Medicaid, together with the potential work earnings of the individual. The gap remaining from this combined income less expenses is the amount the estate will need to provide over the individual’s lifetime.

For many families a significant portion of their estate will come from their home.  The home can be kept in the family and be used to defray living expenses or sold with the proceeds used to buy stocks and bonds in order to provide future returns for the individual.  Another source of estate assets for many special needs families is the death benefit from a second-to-die whole life insurance policy.  The advantage of holding assets in a whole life policy versus other investments is that the death benefit is a guaranteed amount at death.

The special needs financial plan incorporates the income, expenses, and assets of the family and the individual with special needs in order to meet the goals of both; creating a comprehensive financial plan for both will help the family devise appropriate strategies to achieve these goals.

By Barry Jamieson,  CFP®  MA