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When Your Retirement Must Include a Third

Financial Planning News shared a helpful article earlier this month about a difficult situation faced by many New York families: Planning for retirement with a special needs child. If you have a child with various special needs, those circumstances must obviously be built into both an estate plan and a retirement plan.

On the estate planning side, it is important to balance the child’s need for access to public support services and the effect an inheritance may have on that eligibility. In these situations a special needs trust is often critical to meet the needs.

When it comes to retirement planning, the article shares how it is essential to fully understand the future costs for advanced medical care, physical therapy, behavioral therapy, and much more. There is a mistaken assumption that these costs only exist when the child is growing. In reality, even many adult children with special disabilities have significant needs that parents must work into their long-term plans.

Many different long-term retirement strategies hinge on those obligations. Obviously, those planning for retirement may need to increase expected cost of living when funds for a special needs child are added to the mix. One planner interviewed for the story notes that, in general, increased expected monthly allocations by 10-15% is common when caring for a child is part of the mix. To best meet goals it also may require shifting to a conservative portfolio that can better weather storms, downsizing unnecessary assets, and similar details.

There is an obvious intersection between retirement planning and estate planning, however. All advisors will explain that it is critical to keep the child’s eligibility for government programs in mind. This means avoiding disqualifying inheritances in the form of pensions, 401(k)s or similar assets. In fact, this need even exists for many relatively wealthy families. Depending on the child’s needs, even private wealth in the millions can be depleted quite quickly. Taking advantage of available support while protecting those family assets is important.

Special needs trust can help families avoid having to entirely disinherit a child with special needs. However, there are special rules that apply to these trusts and assets can generally only be used in certain ways. It is imperative to understand those rules ahead of time.

There are no one-sized-fits-all answers. Obviously the specific strategies depend on the family’s goals, resources, and the specific special needs of the child. Yet, in all situations, it is absolutely critical not to go it alone. Contact estate planning attorneys and financial planners to at least learn the options out there.

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