Creating a Lifelong Financial Plan

Christopher Currin

CFP®, ChSNC®, Client Advisor


Lifelong planning for folks with disabilities is often a balancing act between providing support and not undermining existing benefits.

Mother supporting sweet down syndrome daughter

Roughly one in four adult Americans has some significant disability.1 Chances are you know someone who’s taking care of a person with an underlying health condition or impairment. While each circumstance is unique, thinking of the financial planning process as three phases can help optimize available resources and ensure that an individual with a disability has vital support over their lifetime. First, prepare for the worst-case scenario. Second, enhance security. Third, create better-case scenarios.


By the numbers

Before we get further into the three phases, let’s consider some recent statistics that highlight why long-term financial planning for those with disabilities is such a critical topic today. Nearly 50 million people are taking care of a friend or family member.2 While some mental or physical impairments occur at birth, and some disabilities are the result of accident or injury, many face health problems when they grow older. Two in five people over the age of 65 have some sort of disability.3

Keep in mind that today’s statistics don’t capture the health effects of long COVID because its impact isn’t fully understood yet. The evidence so far suggests that 20 to 30 percent of people who get COVID-19 will experience significant cognitive, psychological, and physical impairments that limit work capacity.4 The bottom line is that disabilities are common, they often arise without notice, and they can have serious financial implications. That’s why proactive planning is essential.


Four cornerstones for support

Gaining and maintaining eligibility for key government programs can help build a financial foundation for those with health conditions or impairments. These programs are the four cornerstones of support that many people will need during their lifetime. Social Security Retirement Benefits (SSRB) and Medicare are available to older Americans who qualified by paying premiums (usually taxes withheld from paychecks) throughout their working years.

Social Security Disability Insurance (SSDI) is for people who suffer a disability before retirement age. Also, if an individual receives SSDI for two years, they automatically become eligible for Medicare coverage. For instance, if SSDI starts at age 35, Medicare eligibility is age 37. People with disabilities diagnosed before age 22 can be eligible for Social Security and Medicare benefits based on a parent’s work history, which can provide a bigger benefit because the parent has probably paid into those programs for many years.

Meanwhile, Supplemental Security Income (SSI) and Medicaid are means-tested programs for low-income individuals who have less than $2,000 in assets. For 2023, the maximum federal amount for SSI is $914 per individual and $1,371 for an eligible individual with an eligible spouse. Before age 18, parents’ assets and income are considered when determining eligibility for SSI and Medicaid, which disqualifies many children. Once the person reaches majority age, however, they can become eligible based on their own financial situation.


The four cornerstones may not be enough

The four cornerstones, though valuable, are generally not enough. Supplementing these benefits without undermining or endangering eligibility for SSI and Medicaid is a challenge many people will likely face. For example, let’s say an adult with a disability receives SSI and Medicaid and, after a few years, a parent passes away, leaving them a $100,000 life insurance benefit. The inheritance not only disqualifies them from means-tested programs, but also can be confiscated by the state for repayment of benefits previously paid. That’s a worst-case scenario: The parents tried to support their child, who happens to be an adult with a disability, but their life insurance money never reached the intended beneficiary and actually resulted in a loss of government benefits too.

How can you ensure that a person with a health condition or impairment doesn’t lose benefits as the result of a life insurance payout or other asset transfer?


Preparing for the worst-case scenario

A discretionary trust (also called a supplemental needs trust or special needs trust (can sometimes) ensures a transfer of assets without endangering means-tested benefits. There are three variations:

  1. A third-party trust is created, managed, and funded by someone other than the beneficiary. After being set up by the grantor, the third-party trust provides ongoing support to the person with a disability without displacing their public benefits and, when the beneficiary dies, the assets can go to another heir without a clawback of benefits previously paid by the state.
  2. For individuals or families with insufficient assets to create a third-party trust, a master pooled trust might be a better solution. Typically run by a nonprofit organization, this trust aggregates assets for investment and management purposes, then creates subaccounts for each beneficiary.
  3. A first-party trust, or Medicaid payback trust, is funded with assets that are owned by the beneficiary. If, for example, the individual receives a large jury award, it can be added to the trust. By giving up control of the assets, the beneficiary can often maintain means-tested benefits and then take distributions from the trust for additional financial support. Any assets that remain after the beneficiary dies are subject to reclamation by the state.

Be sure to consult a legal or tax professional to determine whether a discretionary trust is right for your situation.


Enhancing security

Cornerstone public programs are a financial foundation for people with special needs. Estate planning is the plumbing that can deliver cash flow for supplemental needs without undermining the foundation. And a comprehensive financial plan is a framework on the foundation, specifically designed to enable a good life. The next step is to wrap the framework with a layer of protection against other perils that can lead to financial ruin.

Enhancing security also means assessing insurance needs. Unpaid medical bills is one of the leading cause of bankruptcy, so health insurance often becomes the most critical need after a disability is diagnosed. Also, because a disability typically increases expenses and decreases an individual’s or family’s income, life insurance should be assessed as well.

A typical life cycle includes: a dependency phase when parents are relied on for support; an accumulation phase when savings are built; and a distribution phase when the workforce has been departed and accumulated assets are being relied on for income. Because a person with a disability typically has a shorter accumulation period (see figure below), their long-term retirement savings goals might need to be substantially different than those of a typical client. For example, a married couple that has a child with a disability might need to plan a retirement for three people instead of two.

What are some of the tools that can be used to help beef up finances and can provide a fuller life for someone with a disability?

Efficient savings can make a substantial difference over time. Qualified retirement plans such as an IRA or 401(k) provide important tax advantages for long-term investors. Health Savings Accounts are also tax-advantaged and can be used not only to pay periodic medical expenses, but also to save for the long term.

In addition, passage of the Achieving a Better Life Experience (ABLE) Act of 2014 created tax-advantaged savings accounts for individuals with disabilities diagnosed before age 26. The total contribution to an ABLE account in a single tax year is capped at $16,000, and the first $100,000 in an account is exempt from the SSI $2,000 individual resource limit.


Creating better-case scenarios

All of this planning, insuring, saving, and investing is meant to enable people with disabilities to live secure and meaningful lives. That means shifting the focus from what’s important for them to what’s important to them—from their needs to their dreams. Their aspirations are not unlike those of their peers, thanks in part to the inclusion of children with disabilities in our public schools since the mid-1970s. Today the frontiers of inclusion are expanding rapidly in both post-secondary education and employment opportunities. There may be challenges in preventing hard-earned money from interfering with essential public benefits, but ultimately everyone can gain when all of us are allowed to make our unique contribution to the community that supports and values us.

The past few years have underscored the fact that disabilities can happen unexpectedly to anyone, thwarting even the most thorough financial plan. While government programs can offer cornerstones of support, they’re often not enough. Looking at a lifelong financial plan in terms of three phases—preparing for the worst-case scenario, enhancing security, and creating better-case scenarios—can help preserve essential benefits while providing sources of supplemental support for the long term.

Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.

All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio.

Mercer Advisors is not a law firm and does not provide legal advice to clients. All estate planning document preparation and other legal advice are provided through Advanced Services Law Group, Inc. Mercer Global Advisors has a related insurance agency. Mercer Advisors Insurance Services, LLC (MAIS) is a wholly owned subsidiary of Mercer Advisors Inc. Employees of Mercer Global Advisors serve as officers of MAIS. MAIS provides individual life, disability, long term care coverage, and property and casualty coverage through various insurance companies. For Mercer Global Advisors clients who wish to purchase insurance products, MAIS has entered into a non-exclusive referral agreement with Strategic Partner(s), where the Strategic Partner will provide necessary services relative to the marketing, placement, and servicing of the insurance products, including without limitation preparing and presenting illustrations, supporting the underwriting process, assisting with the completion and execution of applications, delivering policies, and servicing in-force business. MAIS and the Strategic Partner will be listed as “co-agents” on the policies. While Mercer Global Advisors does not receive a referral fee, MAIS and the Strategic Partner each receives a percentage of the commission revenue. More information about MAIS and our Strategic Partners may be found in our Form ADV 2A.

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