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Life Happens: Financial considerations for parents of special needs children

The Situation

An average, middle-class couple is expecting a baby. During the pregnancy, the new parents learn that their baby has special needs. At first, the reality feels overwhelming. In addition to learning how to care for their child, these new parents will need to adjust their entire personal financial picture.

Initially the couple spends all their time and energy trying to understand the needs of their child. But information comes quickly and in great volume, so they soon understand that it’s imperative to organize their lives so they can truly devote their energy and attention to their child.

There isn’t one simple solution or quick fix for this couple, but there are several strategies and adjustments they choose to implement.

Maternity/Paternity Leave

Husband and wife discussed their situation with their respective employers. Since both are employed at companies with more than 50 employees, either of them could be the primary caregiver and take a 12-week leave, according to the Family and Medical Leave Act. The act does not provide special allowances for parents of special needs children. They decided mom would be the primary caregiver, so she took 12 weeks of unpaid maternity leave – FMLA does not require employers to pay employees during leave. Dad’s employer would allow two weeks of paid leave for the non-primary caregiver and one week of unpaid leave – a benefit not required by FMLA – so he took a three-week paternity leave when mom returned to work.


This couple developed a detailed system for organizing medical paperwork with dedicated files for:

  • Medical bills,
  • Insurance statements,
  • Treatment receipts,
  • Physician/Provider notes,
  • Treatment plans and
  • Specialist referral paperwork.

They also fine-tuned their bill-paying system for household bills, knowing missed payments can become a hassle and have a poor effect on credit.

Financial Planning

A new financial challenge always warrants a new look at financial planning. The couple decided to review their whole financial picture and make some changes.

They purchased disability income insurance for the first time because they figured they wouldn’t financially survive the loss of an income for very long. They also bought significantly more life insurance than their existing $200,000 term-life policies.

They started a special needs trust so their child will always have funds supporting him that are not held in his name. Special needs individuals are not eligible for federal assistance if they have even nominal assets. The trust owns investments, to which the couple contributes a small amount on a monthly basis. And the trust is the primary beneficiary of the couple’s survivorship life insurance policy (also called a last-to-die policy) and secondary beneficiary of both mom’s and dad’s individual life insurance.

Adjusted Expectations

The couple discussed their financial situation and adjusted their expectations to fit their new situation. Since they believe they might need to care for their child throughout their lives, they plan to work longer and delay retirement – into their 70s if possible. They also discussed the likelihood that they won’t be able to afford as many hobbies or as much travel during retirement.

Mom had planned to stay at home with a new baby for two years and work toward her MBA. But they decided the time and expense of an MBA wasn’t worth the benefit and mom will keep her existing job. Both parents also started freelancing during the evening to earn additional income, and they opted not to upgrade into a larger home.

They made budgetary adjustments to cut spending, and they researched their hometown to find fun activities for budget-conscious families. And though their new budget is tight, they’ve decided to continue contributing to their employer-sponsored retirement plans.


If you have a special needs dependent, or you know someone who does, there are also government assistance programs to investigate:

Whether you have a special needs child or you know someone who faces a similar situation – or you’re someone looking for some good organizational/budgeting strategies – you can probably learn something from the family in our example.

Randy Schaller

Smart401k Investment Adviser

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