Parents of adults with disabilities are facing new challenges, as medical advancements mean special needs children are living longer than ever before. Adults with severe disabilities live to an average age of almost 50 years old, while adults with the least severe disabilities live to almost 80 years old.
These improvements in life expectancy and quality are cause to celebrate, but they also mean parents of adult children with special needs have one more thing to worry about — finances. There’s a strong chance your child with a disability could outlive you, and that means starting to plan for their financial future now is of the utmost importance, especially as you plot your own retirement. Here are three of your options to save for your child while working toward retirement.
1.) Establish a Special Needs Trust
Since leaving money directly to your child could disqualify them for Supplemental Security Income (SSI) and Medicaid, it could be savvy to go with the alternative — contributing to a special needs trust. In order to keep receiving SSI benefits, money from the trust can only be used for expenses that don’t relate to food or housing.
These expenses could include therapies that aren’t covered by Medicaid. Also, the Social Security Administration states that money paid directly from the trust to someone in order to provide your child with items such as a cellphone bill, education or entertainment does not reduce SSI benefits. You can contribute cash, liquid assets and property to establish and fund the trust.
Raising a child with a disability has likely changed many of your life goals, but contributing to a special needs trust doesn’t need to derail your personal finance ambitions. Let’s say you’ve always wanted to retire early.
It could still be possible despite contributing to a special needs trust. A specialized calculator can help you determine how much to save for yourself each month to enjoy the retirement you want while also providing for your child.
For example, let’s say you’re 40 years old and earn $100,000 annually after tax. Your annual expenses, which include contributing to your child’s trust, total $80,000, and you have about $125,000 invested.
To maintain your current standard of living at retirement, you’ll need $1,125,000. Assuming you’ve already saved about $80,000, with a smart investment strategy you could retire by around age 52. Maybe you don’t plan to retire early, but at the very least you can see how planning for your own retirement, despite knowing you’ll likely always have a financial dependent, is possible.
2.) Consider an Achieving a Better Life Experience (ABLE) Account
ABLE accounts are very similar to 529 accounts that are commonly used as a savings and investment vehicle for parents preparing to fund their child’s college education. These can be established for a person with a disability at any time, so long as the person was diagnosed with a qualifying disability before the age of 26. Beneficiaries of an ABLE account can use the funds for qualified expenses by using a debit card.
It’s generally less expensive to establish an ABLE account than a special needs trust, and the funds in an ABLE account generally do not impact SSI eligibility — up to the first $100,000 in the account.
Money from a special needs trust can be moved into an ABLE account, and the beneficiary can use it for any qualified disability expense. Your child can manage the account independently and use a debit card to draw money from it; you can place limits on how much can be spent at a time and where.
Consider the cost of maintaining your lifestyle in retirement when determining contributions to an ABLE account. For example, the average retired couple leaving the workforce in 2020 will need an estimated $295,000 to put toward health care (and that doesn’t include the cost of long-term care). In contrast, in 2019, the average U.S. household had $255,200 in retirement accounts, and the average age of retirement was 66 years old.
3.) Designate a Legal Guardian or Power of Attorney
If your child with a disability is over the age of 18, you’ve likely already gone through the process of either becoming their legal guardian or having power of attorney. As you look toward retirement and consider the chance that your child could outlive you, it’s appropriate to begin considering who should become your child’s legal guardian or have power of attorney after your death.
If your child is mentally competent but not able to manage their own finances, it’s likely you’ll go the power of attorney route. Giving a trusted third-party financial power of attorney will bestow this person with the authority to open a bank account for your child, apply for benefits for your child and even decide where your child will live.
Guardianship is a more absolute responsibility that requires a finding of legal incompetence and gives the person you name far-reaching powers.
If your child is capable of understanding part of the process, it could be helpful to walk them through who will be given power of attorney after your death. You can run through mock scenarios with your child and your designated power of attorney so your child has more awareness of what to expect in the future.
The Bottom Line
Considering your child’s life without you can cause a lot of anxiety — especially if your child has a disability. Planning for your child’s financial future now can eliminate many unknowns while also helping you create a retirement that works for your lifestyle.
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Jolene Latimer has her Master's in Specialized Journalism from the University of Southern California. She writes about personal finance, marketing and sports.