Advisor Authority

Retirement For Three

How children with special needs can impact the income plan

by Annette Hammortree, CLTC, RICP®
Ms. Hammortree is Owner & CEO, Hammortree Financial Services, in Crystal Lake, Il. Visit

As a parent of an adult child with disabilities and as an advisor who does comprehensive planning working with special needs families, retirement planning is very different. Typically, I refer to it as retirement for three.

For advisors supporting clients that have children with special needs, the time to start the conversation is now. Based on experience, here are some ways to get started.

Ask The Hard Questions

In working with families, it is important to first recognize you must ask some very difficult questions to understand the hopes and dreams of where their child will want to live—whether at home with the parents, a group home, or a residential placement.

The answer to this question will help inform next planning steps. For example, even if the parent wants their child to live in a group home, it doesn’t mean there will be one available for them. Do the parents need to purchase a home? If so, where will those proceeds come from? Their IRA? Other savings? And, how will that impact their retirement?

Understand The Corresponding Financial Needs

As part of this discussion, it is imperative to have clients do a cash flow analysis of expenses (theirs and their adult child’s), potential pensions, social security benefits, as well as other federal and state benefits (or potential ones) for their adult child.

In the case of an adult child with special needs, whether that child is living with them or not, it is not unusual for parents to be contributing to the child’s expenses. For example, I met with a client last week whose daughter is living in a group home. While she has state benefits which cover her housing and related caregiving expenses, the parents are still paying $2,000/month out-of-pocket for her recreational needs and corresponding support expenses. They also still need to maintain a handicapped accessible van that will need to be replaced over time from their assets or income.

Factor In Parents’ Needs

As planners, we must also consider consideration for the parents as they age.

For example, my son has Cerebral Palsy and is in a wheelchair. He needs help with all his daily living activities. If I encounter the need for care as I age, and he is still living with me, we have a problem.  If I live alone, who will care for us?

Ultimately, should parents have to pay for both their care and that of their adult child’s, this could derail a retirement plan. Finding a solution for this need or gap will need to be addressed.

Consult With Other Experts

Social security and pension options must also be viewed differently. How and when the parents choose to take social security will impact everyone—parent and child. Many pensions will also pay benefits to a surviving adult child when both parents are gone. If the pension is large and will pay to a surviving adult with special needs, that saves a significant amount of assets from being reserved for the Special Needs Trust (SNT) from the parents’ retirement assets.

Ultimately, should parents have to pay for both their care and that of their adult child’s, this could derail a retirement plan. Finding a solution for this need or gap will need to be addressed...

There are very specific mechanics for an SNT to be set up, and it’s not automatic. It’s therefore critical that clients meet with a qualified attorney and benefits specialist. The Secure Act also greatly contributed to the need to have a SNT reviewed, particularly if it was created before the Act’s enactment. For example, while an SNT can still use the lifetime stretch versus a 10-year payout, discussion should happen around whether it best take advantage of this or replace utilizing life insurance. This is a very custom decision depending on the family situation and who they wish to leave money to (for example, other siblings or a charity).

Ultimately, funding a SNT is a delicate process. Many families I have worked with over the years assume they will “save” their assets and just live from the interest, earnings, and the value of the house to fund a SNT. The reality, however, is that most Americans don’t have enough money to have a successful retirement with their assets once you add inflation, health care costs, and the inverse risk of the market. It is highly unlikely there will be money left over to fund a SNT. And, if there is, it is typically from qualified plan assets which will be taxable and tied to the market.

One option to fund an SNT is with life insurance, but even then the challenge can be finding the money in retirement savings years to pay for that life insurance. This is why a very detailed cash flow analysis is needed. Parents must make some tough choices to “find” the money without comprising their retirement.

Another common mistake in funding an SNT is using a 2nd to die policy when a 1st die should have been used. If a parent is the full-time caregiver and passes away, the surviving parent will need to use money from assets to replace that caregiver. Often, 1st to die insurance should be used to protect the retirement assets and more clearly define the money for the SNT or caregiver replacement money.

Take Action Today

Working with families with special needs is complex, and the risk for a successful retirement and plan for their adult child is greater than it is for most families. Establishing trust is everything. Take the first step to building it today.


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