How to Invest for Retirement with Special Needs Children

For parents with special needs children, investing for their retirement and ensuring care for their children will be secure are two critical tasks.

Depending on the child’s needs, parents may need to support their offspring well into their own retirement and make arrangements to care for their child after the parents’ death, all while making sure the parents can support themselves. To do so requires deftly navigating financial and legal considerations.

Start early. Richard A. Gotterer, certified financial planner, director and senior wealth advisor with Calamos Wealth Management in Coral Gables, Florida, says much of what the family can accomplish depend upon the child’s needs and family financial situation. However, there are still a lot of similarities regardless of the family’s dynamics, he adds.

[See: 9 ETFs for Retirement Investors to Own.]

Once parents have identified their child has special needs, the earlier they can start planning, the better, he says.

“You’ve got to create a road map, just as when you’re driving someplace,” Gotterer says. “You have directions on how to get there. When you have a special needs child within your family, it’s very important, as early as possible, to face the fact that there are some differences and that you’ve got to create a plan.”

Lisa Bamburg, co-owner of Insurance Advantage in Jacksonville, Arkansas, who has a special needs child, concurs.

“It’s never too early to start planning for your special needs child and it’s never too late to start planning for your special needs child,” she says.

Bamburg says as important as it is to get funds to care of her special needs son, she also has a separate savings and retirement plans for herself and works with a financial advisor.

“It is a balancing act to try to know how much to put in each bucket,” she says. “Because if I put it all in Joel’s bucket to make sure he’s taken care of, but then I have nothing left for me, that’s not going to work really well.”

Minoti Rajput, chartered special needs consultant, president of Secure Planning Strategies in Southfield, Michigan, and author of “Beyond a Parent’s Love: Lessons Learned in Life-Planning for Special Needs Children,” says saving for retirement and a special needs child isn’t an either-or situation.

A lot of parents are realizing this, she says, and Rajput admits sometimes take a modified approach to savings, such as saving just enough in a 401(k) plan to at least get the company match. Some parents also may need to put off retirement, too.

[Read: 6 Ways to Fix a Retirement Savings Shortfall.]

Seeking help, utilizing trusts. Rajput says parents can’t assume that their estate will cover whatever their child needs after their death. Considering most people are living longer, the parents may need it all themselves, leaving little behind, she says.

Instead, the sources say, look to create a trust that will kick in after the parents’ passing. These trusts can be funded by investing in whole life or universal life insurance, not term insurance.

Rajput says she uses a policy called joint survivor, also known as second-to-die policy, where both parents are insured under one policy and the death benefit is available only then they both die. She says it can be purchased by parents when they are in their late 40s or 50s once they know their child’s development will not change.

“Then they can pre-plan and buy the policy, but can design it in such a way that the policy is paid up by the time they retire so that they don’t have an ongoing expense on that policy,” Rajput says.

Special needs children are likely also eligible for some federal and state funding, and maybe local assistance from advocacy groups, Bamburg says. Medicaid and Social Security disability insurance are the two main federal programs, and each state may have some assistance.

Bamburg says special needs trusts are necessary since the child cannot have any assets in his or her name since it can affect their Medicaid, SSDI and other supplemental help. Seek out an attorney who concentrates in special needs trusts because they are different than regular trusts, she adds.

Parents will need to find someone to oversee the trust. That person can be a family member, or it can be a corporate trustee, Gotterer says.

Gotterer recommends parents also look at Achieving A Better Life Experience account, known by the acronym ABLE. These are similar to 529 education plans. These are inexpensive to set up and don’t require lawyers. They can be funded up to $15,000 a year. Like 529 plans, any earnings grow within the ABLE account on tax-free basis. Distributions are also tax-free if they’re used for qualified medical care.

These accounts are good for family members who may want to contribute to help the child without jeopardizing any governmental benefits, Gotterer says. The child can only have one account.

Special needs people who can function well enough to make a small amount of income but cannot be independent can also contribute to the ABLE plans.

[See: 7 Things That Can Derail Your Retirement Investing.]

Rajput says ABLE accounts are great tools that can be used in conjunction with special needs trusts, but shouldn’t replace them. She says because the financial and legal issues are thorny, parents should start planning when they can.

“Begin planning as early as you can because your child could be living very long, and the quality of your child’s life really depends upon what you have done,” she says. “And it’s truly a partnership between the parents and the government to do good planning for the child.”

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