Special needs planning comes with a list of challenges. At the top of that list is trying to figure out the lifetime financial support needed for your loved one. It’s more than figuring out basic needs and bills. You’re forced to put a monetary value on the quality of life for your loved one. That’s not easy for anybody involved.
Creating an estimate for lifetime financial support is the first step in creating a life where your loved one with special needs is taken care. The formula is quite simple:
Income + Government Assistance = Cost of Private Expenses.
By keeping this simple formula in mind, you’ll be able to maintain a quality of life and scale in either direction depending on income and expenses.
Assessing Your Income
All income is not created equally. Some income is tax-free, others are not. Some will affect Supplemental Security Income, some will not. We’ll dig into that deeper in a moment, but for now, there are four main areas of income that you should be aware of:
- Social Security or government income assistance
- Support from others
- Personal income
- Contractual payments
With Social Security and other government income assistance programs, you won’t have to worry about having it taxed or affecting your loved one’s SSI. The one exception is Social Security dependent income which is both taxable and affects SSI. Government assistance such as food stamps, Earned Income Credit, and HUD Section 8 vouchers are both non-taxable and will not affect SSI.
Support from others is usually a fair percentage of income depending on their level of involvement. Most of these forms of supports will not be taxable but will affect SSI. Whether it’s cash from family members, payments received from a trust, or providing room and board, these are all considered sources of income that should be included in your estimate.
Personal income is the category that most caregivers are familiar with. Wages, salary, dividends, and more. These are all taxable sources of income and will affect your SSI. While this is not ideal, it is often a significant percentage of income that can’t be overlooked.
Contractual payments are not common, but they do happen. Child support, inherited IRAs, damage awards, and pension payments all fall into this category. Be sure to consult with your financial planner for specific sources of income in this category.
The Four Main Types of Expenses
Estimating expenses is a challenge that most don’t take enough time to really think about. Sure, you’ll need to think about inflation (I recommend 2.5 to 4% over 30 years) and the rising cost of services, but most people assume that base services will remain constant throughout your loved one’s life. This is a mistake. As they get older, they’ll have higher cost-of-living expenses such as rent and utilities, consume more food, and medical expenses will rise.
Personal expenses include the primary expenses that most people will have: housing, utilities, food, clothing, and similar expenses. As of 2017, the Federal Poverty Level was $12,060. This accounts for the basic needs such as those listed above. This figures out to just over $1,000 a month. While this will cover the basics, it needs to be viewed as just that -- the basics.
Most families want to provide a higher quality of life than the minimum, so doubling that number will be a good number to work off. Even after that number, you’ll need to figure in additional expenses depending on what your loved one will need.
Higher education, property purchases, and coaching are all additional expenses that can greatly enhance your loved one’s life. They should be considered and factored in when creating your budget. While it’s impossible to know the exact expenses you’ll face down the road, this will give you a good baseline to work from.
Professional services are an expense that can vary greatly between families. For parents that are the sole caregivers for their child without a lot of outside help from friends and families, this will be a bigger expense. These services may include a professional guardian in the case of death of the primary caregivers, trustee tax accountants, and powers of attorney.
These can be extremely tricky to estimate. Speaking with local professionals can give you a better idea on not only fees but the number of hours their services are required. Be sure to keep them honest and fair. Unfortunately, not all professionals will have your best interest in mind and will quote you much more than is needed. Think realistically and do your research.
Special Needs Expenses
Government assistance can come in many forms and will vary from state to state. For simplicity’s sake, I’ll include New York state’s services here. In NY, a few of the services include:
Daily Living and Social Skills
- Gain or Regain life skills like making social connections or budgeting
- Learn how to advocate for yourself and negotiate relationships
- If needed, get treatment and rehabilitation services in your own home
Education and Employment.
- Individual Employment Support
- Choice of employment goal and benefits counseling
- Support in finding and keeping a job
- Support to help you stay on the job and start career planning
- Education support to start, return to, or graduate from school to learn skills to get or keep a job
Peer and Family Supports.
Get help from people who have been there
- Get support from people who are in recovery
- Give your family and friends the knowledge to help support you
Crisis Respite Services help you manage mental health and substance use crises in a safe environment
- Come to a safe place to stay in the community and be supported by people who also have lived experience with mental illness and substance use disorders
- Learn coping skills and how you might be able to prevent crises in the future
These services can help tremendously and should be maximized. You can find more information about New York state’s eligibility requirements here.
These are expenses that are directly related to your loved one’s condition. This includes medical bills, physical therapy, skilled nursing and more. This number varies greatly from family to family and should not be ballpark estimated. Figure out total services required now and estimate the future expenses based on the current trajectory.
Asking For Help
Estimating lifetime financial support for your loved one isn’t an easy tax. It’s okay to ask for help from somebody with experience. As a fee-only certified financial planner serving the Long Island, NY metropolitan area, Woodhull Capital Advisors, LLC can help you create estimate lifetime financial support for your loved one with special needs.
Since we are a fee-only financial planner firm, we don’t earn commissions on our services. That means when you meet with us, you can rest assured knowing that we will have both you and your loved one’s best interest in mind. No tricky sales tactics, just expert guidance from a trusted CFP to make sure that you and your loved one are taken care of.
Schedule a free 30-minute consultation today so that we can learn more about you and your needs. We’ll fill you in on how we can help and what your next steps should be to ensure your loved one lives a full and happy life.