Dave Says: Financial Planning for a Special Needs Child

Dear Dave,

Our daughter is a special needs child, who doctors say will live about half as long as the average adult. There’s also a good chance she will be under our care her entire life. We just finished Baby Step 3 of your plan, so we have all of our debt paid off except for the house, and we have an emergency fund of three to six months of expenses saved. We have health insurance, too. However, we were wondering how the situation with our little girl affects retirement planning and college funding?

Jonathan

Dear Jonathan,

I know this may sound strange, but the situation with your daughter really doesn’t affect things all that much. The only real difference is that it sounds like you’ll be responsible for your sweet daughter for the foreseeable future — not just until she’s 18 or 21.

If you don’t already have it, you and your wife should both buy 10 to 12 times your annual incomes in term life insurance. Make sure the money from the policies is set up to go into a special needs trust that would be managed for her care. That way, your baby will be taken care of in the event something unexpected happens to you.

Otherwise, just keep following my plan. Baby Step 4 means you start putting 15 percent of your income into pre-tax retirement plans, like Roth IRAs and mutual funds. Baby Step 5 is college funding if that’s a consideration for her, followed by paying off your home early. Then, of course, the last Baby Step is building wealth and giving.

Financially speaking, you’re looking at filling a need in the event of your deaths. This should be covered by life insurance or investments. If you reach a point where your investments are substantial, and money from those things can adequately cover her needs and the needs of your family, then you can always drop the insurance policies.

God bless you all, Jonathan.

—Dave