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Plan Early, Plan Often

Although the only generic answer to most financial planning questions is “It depends”, because every client’s situation is multi-faceted and unique, the answer to “When is the best time to start special needs planning?” is always “Now.” Financial planning is an inexact and iterative science. We are forecasting the future, and things can change radically even before the near future arrives. You might lose a job or get a better one. Congress might pass a new law about taxes or retirement accounts. The real estate or stock markets might surge or plunge. Your young child with a disability might grow up to be mostly independent or might need more support than you initially expected. And the longer the planning time horizon, the more things might change between the time that we make the forecasts and the time that arrives to which the forecasts apply. But rather than undermine a robust plan, the very unpredictability of the future gives the plan a raison d’etre.

A good financial plan is not today’s printout that predicts that you will need $2.5 m to retire and $400,000 to pay your kids’ college tuition and $650,000 to fund a special needs’ trust. A good plan is the set of formulas that describe the relationships among income, expenses, taxes, inflation, government benefits, investment performance, actuarial risk, and all the other variables that will impact when and how the parents can retire, when the children can get their degrees, and when the family member with special needs can get support services. Anyone who’s read The Hitchhiker’s Guide the Galaxy knows that “42” is the answer to the Ultimate Question of Life, the Universe and Everything. But the important (and unknown) thing is the Question itself. A good plan can be used to create a range of outputs to create and then address the “what if” questions:

  • What if we retire at 62? What if we retire at 72?

  • What if my child goes to a community college? What if s/he goes to Harvard?

  • What if my child with special needs works?

  • What if my child with special needs gets funded for services at 22? What if not until 45?

  • What if someone dies prematurely? What if someone lives exceptionally long?

If the outcomes that seem the most desirable also seem the least likely, starting the plan well in advance gives time to implement several more effective strategies for saving, investing and taking care of risk. In addition, starting early takes advantage of the simple, powerful engine of compounded growth. Money invested with an average rate of return of 6% doubles every 12 years (the Rule of 72—take that HHGTTG!). It’s clear that a 24-year investment horizon is better than a 6-year one.

Then too, some strategies that can have a major impact on plan outcomes such as: taking one’s career to the next level or changing careers, getting married or divorced, upsizing or downsizing a home or starting a business take time to plan and more time to implement. While this is true of all financial planning, it is even more relevant in special needs planning, particularly in a state like Illinois, where adult support services for people with disabilities are under-capacity, underfunded and still skewed towards outdate models. If the family member with a disability cannot find a job that suits, then the family might have to help him/her start a micro-business. If there is no supported living arrangement what fits his/her needs and personality, the family might have to buy a house, find roommates and hire staff. A long-term, second-to-die life insurance policy might be the best way to fund a special-needs trust. An Achieving a Better Life Experience (ABLE) account might be a useful savings vehicle, but is effective only over time, given the annual $15,000 contribution limit.[i]

Like the dolphins (who are actually the most intelligent species on the planet according to HHGTTG), we financial planners sometimes feel that our message to “get started now” is being somehow misinterpreted as “wait till your assets have grown much larger” or “wait until you have your education/career/home purchase/relationships all worked out”. Nope. By the time we’ve waited long enough to see that, the only thing we’d be able to say is “So long and thanks for all the fish.”

[i] Plus about $12,000 additional that can be contributed from the earnings of persons with disabilities who work.

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