How to Manage the Finances of Raising a Special Needs Child

Jeff Vistica
November 17, 2022

Raising children is expensive. According to the U.S. Department of Agriculture, parents will spend about $233,000 ($284,000, if you factor in inflation) between birth and age 17. These costs include housing, food, child care, and education.

By some estimates, costs can quadruple for children with special needs depending on the nature and severity of the condition. A special needs financial planner can help you make informed decisions in this case because the impact of these costs is not isolated to relatively few families.

According to the National Center for Education Statistics, 7.2 million students between the ages of 3 and 21 received special education services under the Individuals with Disabilities Education Act in 2020--2021, representing 15% of all public school students.

3 considerations when raising a child with special needs

Before sitting down and calculating the costs, there are things you should know to fully understand the situation.

1. Disability categories

There are four major types of special needs children:

  • Physical: Children with a physical disability don’t have normal body movement or control.
  • Developmental: Autism and down syndrome are common developmental issues.
  • Behavioral or emotional: These include attention deficit disorder, bipolar, and oppositional defiant disorder. 
  • Sensory impaired: These children are deaf, blind, or visually impaired.

2. Prevalence of autism

According to Autism Speaks, 1 in 44 children in the U.S. is diagnosed with an autism spectrum disorder, with boys being four times more likely to be diagnosed than girls.

The severity of autism ranges broadly. An estimated 40% of those diagnosed are nonverbal; 31% have an intellectual disability. Nearly half of children with autism also “wander or bolt from safety.”

3. Staggering costs

The cost of caring for those with autism was $268 billion in 2015 and is estimated to reach $461 billion by 2025. The cost to raise a child with autism or an intellectual disability (depending on the severity and other issues) can be as high as $2.4 million.

Other considerations

Beyond the factors at present, the cost of raising a special needs child also requires a look into their future when you pass away.

  •  Special needs trust

You may want to consider creating a special needs trust as the beneficiary of an insurance policy (and other assets) intended to benefit your child. Doing so will preserve their eligibility for Medicaid, Supplemental Security Income, and other needs-based programs.

Different types of special needs trusts may be suitable for your situation. You should consult with a financial advisor specializing in special needs and an attorney with experience setting up these trusts to determine which type is best for you.

  • Insurance 

Depending on your age, your assets, and the nature of your child’s disability, determining how much life insurance you need can be challenging.

It involves estimating future expenses, whether the policy should be individual or one that insures both parents, whether you should obtain survivorship life insurance, and determining the type of life insurance (term or cash value insurance) that’s best.

You also need to consider whether to insure the life of your child. Among the issues to consider are whether they are insurable now but may not be later and your need for a benefit if they die prematurely.

Cost of raising a special needs child: 3 steps to take

Follow these steps to properly manage special needs finances and avoid issues.

1. Plan early

If you are told that your baby will be born with a disability, it’s never too early to start looking for a caregiver. These workers are in short supply, and it can take a long time to find the right person.

If you are a two-income family, consider the impact of a possible reduction in income if one of you has to reduce your work hours or stop working to look after your child.

2. Formulate a plan

Every journey begins with a single step. Formulating a plan to fund the massive costs associated with some disabilities is the first step in confronting this issue.

Experts suggest estimating lifetime costs, reviewing insurance coverage, including the cost of co-pays and deductibles, and coming up with a number you will have to fund yourselves.

3. Government resources

Here’s a partial list of government resources that may be available to reduce the cost of raising a child with special needs:

  • SSI

You may qualify for Supplemental Social Security benefits. You can find a listing of impairments that qualify here.  

The Social Security Administration deems a child under 18 to be disabled “if they have a medically determinable physical or mental impairment or combination of impairments that causes marked and severe functional limitations, and can be expected to cause death or has lasted or expected to last for a continuous period of not less than 12 months.”

SSI is needs-based. You must demonstrate you meet the limited income and total assets requirements.

  • Medicaid

Medicaid is jointly funded by the federal government and individual states, with services and payment rates varying widely. To qualify, you must meet the limited income and asset criteria until your child reaches age 18.

If your child has a severe disability, you may qualify for a “waiver” program with less stringent income and asset requirements. If you qualify, Medicaid will cover a broad range of healthcare costs.

  • Children’s Health Insurance

This program provides health coverage to eligible children through both Medicaid and a separate Children’s Health Insurance Program and is administered by the state.

It has income limits ranging from 170% up to 400% of the Federal poverty level, which vary by state.

  • ABLE accounts

ABLE accounts are tax-advantaged savings and investment accounts for individuals with disabilities. ABLE accounts allow eligible individuals to save and invest money, largely without affecting eligibility for public benefits.

The total annual contribution for the 2022 tax year is $16,000.

Raising a special needs child

There are many other financial issues you will confront as the parent of a child with special needs. The key to coping is facing them head-on as early as possible and working with a team of trusted advisors with experience dealing with your situation.

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