Help Me Retire: I want to retire in two years, my wife and I have $3 million saved but we’re worried about our son with special needs — what can we do?
I’m almost 60, my wife is 57, and I want to retire by 62. Currently, I am earning roughly $125,000 to $150,000 a year, which supports my family. My wife stopped working at age 43 to raise our child, who is now nearly 18 and has moderate-severe Autism. I have no debt and own three houses. I live in one, one is empty (inheritance) and one is rented. I pay a mortgage on the home I live in ($1,350 a month, with only 20 payments left), and the other two are paid off. Cumulatively, they are worth on the market an estimated $2.6 million. I plan to rent the empty home but I’m not sure when since it is a little sentimental to me because my parents lived there until they passed not so long ago. Once rented, both rentals will bring in $6,000 per month. Other than the homes, I have $2.2 million in my 401(k), my wife has $600,000, we have $150,000 in savings, and $100,000 in my brokerage account. I don’t plan to apply for Social Security until Full Retirement Age at 66. I will apply for Medicare at 65 as will my wife and we are both in average to good health.
My main concern is my son, he needs full-time care and will never be able to support or live on his own. There are resources available to him, such as a regional center, Medi-Cal, in-home support services, and government funds, which all contribute to his life away from mom and dad when we retire. I don’t want to worry about my son’s happiness and well-being in a state system, so I was planning to contribute toward his other resources so he can live in the best possible care and ensure to the best of my ability that he will be taken care of and happy when we are not around. I plan to contribute around $100,000 a year on top of the other resources previously mentioned, which is close to another $100,000 a year. Is this enough?
I would also like to maintain or elevate my lifestyle when we retire. Do you think this is feasible for our retirement and my son’s future?
See: How to plan your retirement when you have children with special needs
It is so wonderful to see how much you’ve saved for your and your wife’s future and how you are planning for your son’s as well — kudos to you.
You’re asking really important questions, and ones many other families are weighing as well. Retirement planning and special needs planning go hand in hand, especially for parents who are worried about their childrens’ well-being during and after their own lifetimes. You have to strike a delicate balance between taking care of your children, but also not putting yourself at risk of falling short in retirement.
You and your wife have amassed a really wonderful nest egg — more than $3 million in non-real estate assets, and then the estimated $2.6 million among the three homes, as you’ve said. To a lot of people, it may sound like you’re all set to live out your lives and take care of your son, too. Although you do have the financial means to help, carefully consider how you’ll do so.
For example, based on the assets you provide and assuming you and your spouse live to 92, the $3 million you have invested would be plenty, said Eric Bond, a financial adviser at Bond Wealth Management. But where will that $100,000 a year come from? Most likely, it will be from your retirement accounts as your savings and brokerage accounts don’t house enough to support that withdrawal rate. “Make sure you don’t deplete your savings and sacrifice your own financial security,” Bond said. You also need to have an emergency account set aside for any unforeseen circumstances, especially while maintaining two rental homes.
I’m going to offer some resources for special needs planning in a moment, but I’d like to first address your retirement plans really quickly. You mention you want to have an “elevated” lifestyle in retirement. I’m not entirely sure what that means, but make sure you do before you leave the workforce. Try to estimate what your monthly expenses will be for this new lifestyle, and then determine where you plan to draw the money from, Bond said. “Longevity and then length of your retirement will also be a factor here — if your retirement lasts 20, 30 or even 40 years, do you risk depleting your savings by living an elevated lifestyle in the early years of retirement?”
This is absolutely not to say you shouldn’t splurge a little. After you both have worked so long, in and outside of the home, you both should enjoy your retirement years — just map out how you plan to pay for it on top of your goals for assisting your son with that $100,000 a year.
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Be as extensive as possible in your budget estimates. For example: Healthcare. Your son may be taken care of with the various resources you mentioned, but will you be paying for private insurance until you’re eligible for Medicare? That can get pretty pricey, so budget out your healthcare expenses before you retire.
As for your Social Security benefits, think carefully about when you claim those too. You mentioned starting at your Full Retirement Age, which is definitely better than claiming early when you can afford to do so, but you might even want to delay longer. The longer you wait to claim your benefits after your FRA and up to 70, the more you’ll get in those paychecks when the time comes. Run scenarios using your ages as well as your wife’s, who will receive her benefit based on yours if you predecease her.
One strategy is to have your wife start collecting her benefits at her FRA, that way your son can collect half of her amount. Then, when you turn 70, he start collecting your benefit, said Alexandria Dunn, a certified financial planner and wealth adviser at Affinia Financial Group. (Children are eligible to claim up to half of a parent’s full retirement benefit past 18 if they have a disability that began prior to age 22, and for survivor benefits, they can get up to 75% of the deceased parent’s basic Social Security benefit, according to the Social Security Administration).
I often suggest people reach out to a financial planner, who can look closely at the minute details and financial statements and make an actionable plan based on their needs and goals. I’m going to suggest that to you as well! Having a professional could really pay off, as he or she will be best able to determine how you can draw down your retirement savings in a meaningful yet efficient and tax-advantageous way.
If you do go this route, look for an adviser who specializes in special needs planning, as they’ll know many of the rules and options available. Here are two additional resources for you to look into: the Academy of Special Needs Planners and the Special Needs Alliance, said Cynthia Haddad, a certified financial planner, partner and wealth adviser at Affinia Financial Group. Those organizations can help you find advisers and attorneys. Haddad and her colleague John Nadworny recently wrote the second edition to their book “The Special Needs Planning Guide: How to Prepare for Every Stage of your Child’s Life,” published by Brookes Publishing and to be released next month.
Bond also recommends working with a family attorney, who could assist you in creating a special needs trust, if that’s right for you. “Many people have made the mistake of naming disabled family members as the beneficiaries of their wills and in leaving assets outright to them, the disabled person can lose eligibility for government assistance programs,” Bond said. “It’s possible a special needs trust is a good option because it will allow you to provide for spending that may improve your son’s quality of life without jeopardizing government monthly income or other services that may be their main ongoing source of support.”
This concept is crucial. You likely want to protect your son’s ability to receive benefits, while also contributing for his benefit as well.
Also see: The pandemic made everything harder: Financial strategies for people with disabilities and special needs
There are two main types of special needs trust: one is a first-party trust, which would be in your son’s name, and the second — and more common option — is a third-party trust, where anyone can contribute money for the beneficiary and upon the death of that person, other beneficiaries named by the grantors receive the remainder. Regardless, make sure if your son is beneficiary to any of your accounts, it’s his trust that’s really named as beneficiary, so that he remains eligible for various benefits, Dunn said.
Also keep in mind what you want in terms of his caretaker, now and in the future. States have varying rules on this, but some allow one parent to be guardian and the other to act as caregiver and receive a Medicaid stipend. Check with your state if this is an option. As morbid as it may feel, think very carefully about who you want to be there for your son when you and your wife aren’t. Who are the key people in your lives? And what roles and responsibilities can they or would they take on? Talk to them about it before you make it official, of course.
Guardianships can be quite restrictive, and have had a bad reputation especially as of late because of Britney Spears’ 14-year-long conservatorship. But in situations where the person is incapable of making his or her own decisions, it may be the only route, Dunn said. There are limited guardianships available, such as those just for healthcare or just financial matters, but an attorney can help you determine what the best avenue is for both you, your son and family.
It’s better to make these decisions now than have someone else make them after you both pass. You may even want to name a co-guardian, who could step in if the current guardian dies.
“Guardianships are court-appointed,” Dunn said. “If the guardian passes away, a new person has to go through the full process the parents did.”
As the saying goes, and as flight attendants remind us every time we’re on a plane, you have to put your own air mask on before helping someone else. This is true even in your situation. Figure out how much money you’ll need in retirement, estimate your spending in this next chapter and get a handle on your expenses. Then you’ll know where you stand and how you can help your son.
“We always start with: Take care of mom and dad first,” Haddad said.
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