families face complex retirement planning
Send a link to a friend
[November 03, 2016]
By Mark Miller
(Reuters) - Mary Anne Ehlert came by her expertise in financial planning
for special-needs families the hard way: she has lived through the
Ehlert, a certified financial planner based in Lincolnshire, Illinois,
has a sister who was born with cerebral palsy, and a son who suffers
from blindness and mental illness. Both of her parents developed
disabilities later in life. “I started out by asking my parents about
planning they had done for my sister, and found out what they had done
really was wrong.”
When she left behind a career in corporate finance and launched her own
planning firm in 1989, she focused on serving families with
disabilities. Today more than half of her clients have a special-needs
The financial planning challenges for parents of special-needs children
are complex. One of the toughest for these parents is planning for their
own retirement, and balancing that with the long-term needs of a
disabled child, who may outlive them.
Key challenges, according to Ehlert, include creating a plan for the
family member’s care, projecting cash flow needs well into the future,
and making decisions about investment allocations for assets dedicated
to the family member.
“We always have a line item in our cash flow models showing what the
cost will be to support a child when they are grown, but usually our
clients can’t think about that while they are working - they are focused
on education, doctors and many other immediate needs,” she said.
“Suddenly the child is done with school, the parents are getting older -
and they are trained to think that government will pay for it all - but
Government assistance typically begins with Supplemental Security Income
(SSI) benefits from Social Security. Disabled children from birth up to
age 18 can receive SSI if their parents meet the program’s low-income
and asset requirements. At age 18, they can qualify for SSI on their
own; the maximum benefit in 2016 is $733 per month.
In most states, SSI recipients automatically qualify for Medicaid, which
provides a range of services for disabled people. But Medicaid funding
is facing severe financial strains in many states, with services being
Social Security Disability Insurance (SSDI) is an important benefit for
special-needs families. SSDI pays benefits to adults with disabilities
that began before they turned 22 years old. Changed "turn" to "turned"
to keep tense consistent with "began" - but did I change the meaning? It
is considered a “child’s” benefit because it is paid on the parent’s
Social Security earnings record. The benefit is 50 percent of the
parent’s Primary Insurance Amount (PIA) - the amount he or she would
receive at full retirement age. If the parent is deceased, the benefit
is increased to 75 percent of PIA.
[to top of second column]
But the decision to file for SSDI needs to be considered in a broader
family claiming context. That is because SSDI is available for the child
only if one of the parents is receiving Social Security retirement or
disability benefits, or if a parent is deceased. That brings into play a
number of complex computations about optimizing a family’s overall
Social Security income.
Families with special-needs children also should take a more
conservative approach to allocation of their retirement portfolios,
Ehlert said, with a higher level of cash than usual. “You still want
growth and a nice, diversified portfolio, but there needs to be enough
cash there that if the market plunges, there are resources to meet
immediate needs, and for the portfolio to recover.”
Congress created a new saving opportunity for disabled people in 2014
with passage of the Achieving a Better Life Experience (ABLE) Act. The
law permits creation of ABLE tax-advantaged savings accounts that allow
people with special needs to save up to $100,000; higher amounts can
lead to suspension of SSI benefits. A number of states have created ABLE
accounts. (More information is available from the ABLE National Resource
Another key step is creation of a Special Needs Trust to receive assets
on behalf of the disabled family member, managed by an appointed
trustee. The trust can hold a mix of assets, including cash, an
investment portfolio and life insurance.
Ehlert advises clients to buy “second to die” policies that provide
benefits to heirs after the last surviving spouse dies. “It’s really the
cheapest way to fund living expenses for a child,” she said.
Once a retirement plan is in place, be sure to share it with extended
family. Anyone with a specific future role needs to be informed, and
agree to it. “It’s important to educate the family on what the parents
have set up, and to make sure everyone knows where the important
documents can be found,” she said.
(The writer is a Reuters columnist. The opinions expressed are his own)
(Editing by Matthew Lewis)
[© 2016 Thomson Reuters. All rights
Copyright 2016 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.