28 Sep 2023

Financial planning with a special needs child

If you’ve only got a minute:

Caring for a special needs family member entails caring for yourself as well.
Having adequate insurance coverage will help to defray any potential costs and replace your income, in the face of unexpected events.
Protect the value of your hard-earned money from inflation and make it work harder, by investing prudently.
Ensuring you have a sufficient retirement nest egg and setting up a sound estate plan is an act of love.

If you have ever taken a flight, you would have noticed that the pre-flight safety instructions in the event of a change in cabin pressure is to place the oxygen mask over your own face first, before assisting anyone else, even your own children or dependants.

This seemingly counter-intuitive advice of “saving yourself” first can be applied to other areas of our lives, including looking after those who depend on us.

While it sounds selfish, the reality is that if you do not ensure your own well-being, you will end up in no position to look after those who need you.

Living with a special needs child and/or family member requires sacrifices in lifestyle and living arrangements for the entire family. This involves ensuring you have a sound financial plan, and charting out different options for your loved one in terms of education, vocation, and other pathways that might be applicable.

While making these plans might keep you busy, you should not neglect “saving yourself” first. Planning for your own retirement is an act of love towards your child as it can relieve your child of the potential burden of having to support you financially, especially if medical costs crop up in your golden years.

Be ready for the later years

In terms of financial planning, you must set up a family budget and ensure that you have adequate emergency savings, in line with your plans for your child.

Remember to consider the various range of support options available to him/her and their respective costs. Preparing your child well for independence and adulthood will ultimately help them in finding suitable employment and the rest of their life ahead.

Concurrently, take steps to save and prepare for your own retirement.

Protection

If you are expecting a child, congratulations! Regardless of whether you are a new parent or expecting another bundle of joy, the latest addition to your family will come with its own set of responsibilities and concerns.

Take note of any existing policies that:

Were previously bought for you by your parents
Are provided by your employer
Provide term life coverage under the Dependants’ Protection Scheme (DPS)

If you find yourself over-insured or have any insurance gaps, you can make the relevant adjustments and revise your current budget accordingly.

Use the “Plan & Invest” tab in digibank to help you keep track of your insurance needs.

Life insurance and disability insurance are 2 options that you can consider.

Life insurance

Life insurance will provide a lump-sum payout as a death benefit. While it does not relieve the grief that comes with loss, it helps to defray any unexpected costs and provide a financial buffer for the family.

Depending on your affordability and needs, you can select between a term and a whole life plan. A term plan has no cash value and usually costs less than a whole life plan for the same amount of sum assured.

On the other hand, a whole life plan has a cash value. This means that if you surrender the policy at some point, you will be able to get back a portion of your total premiums paid or more, depending on the type of policy you hold and when you surrender it.

Any amount you leave behind for your family will undoubtedly help them to live a more comfortable life, especially if you have a special needs child.

Disability insurance

Singaporeans aged 30 and over are automatically enrolled into the national severe disability scheme, CareShield Life. It is a long-term care insurance that offers cash payouts in the event of severe disability.¹ The premiums for CareShield Life can be fully paid by your CPF MediSave savings.

Depending on your needs, you can consider supplementary plans to CareShield Life. These plans offer higher monthly payouts to supplement the CareShield Life payouts, and often come with less restrictive criteria before making a claim.

You can also look at income disability insurance that kicks in when you are unable to perform your occupational duties due to any form of disability. These typically offer up to 80% of your average monthly income, as a fixed monthly amount to relieve some stress due to income loss.

Other types of insurance

If the risk of being diagnosed with dementia is a concern, the Dementia Caregiver Protect plan provides coverage for both the care recipient and the caregiver in the event of a dementia diagnosis. This will relieve the financial burden on your loved ones, especially if you are the sole breadwinner in the family.

You can also consider insurance plans which cater specifically to individuals with autism.

Read more: What happens when dementia hits
Learn more about: Dementia Caregiver Protect

Preservation and growth

After ensuring that you have sufficient savings set aside for emergency purposes, do remember to put any extra funds you have to work. Left idle, the value of your hard-earned cash will be eroded by inflation over time.

Investing can help to preserve and even grow the value of your funds.

This will be especially helpful if you have a special needs family member who needs extra care financially, physically, and emotionally.

Based on your financial circumstances, risk appetite, time horizon and financial goals, you can decide how best to allocate your funds. Bear in mind that risk and returns are inversely correlated – the higher the potential return of an investment, the higher the risk of potential loss as well.

Low-risk investing options

Singapore Government Securities like Treasury Bills, Singapore Government Bonds, and Singapore Savings Bonds are safe and stable options to consider. These range from a relatively short tenor (6 months) to longer ones (10 years).

Alternatively, by placing Fixed Deposit (FD) in a bank, you can earn a higher interest than leaving cash in your everyday savings accounts. These deposits are covered under the Singapore Deposit Insurance Scheme (SDIC) up to $75,000 per bank.

For more flexibility, you can place your funds in high yield savings accounts like DBS Multiplier. It offers you higher interest rates if you fulfil certain criteria like income crediting and having transactions in categories like credit card spending, home loan repayments, insurance or investments. You can use the calculator provided to gauge the interest you qualify for.

Read more: 8 low-risk cash alternatives to invest in
Read more: Investing in T-bills

Dollar-cost averaging (DCA) and lump-sum investing

If your risk tolerance allows for it, you can consider pooled investment instruments like exchange-traded funds (ETFs) or unit trusts. These offer the benefits of diversification through having a basket of underlying stocks.

It is common for families with higher day-to-day expenses (e.g. from caring for a special needs loved one) to have a tighter cashflow, as well as less time to actively monitor any ongoing investments. In this case, 2 options you can consider are a regular savings plan (RSP) or a robo-advisor.

DBS Invest-Saver is an RSP which enables you to start investing with smaller amounts (from $100 per month) through dollar-cost averaging – investing a fixed amount into the same investment at regular intervals. It also offers you some flexibility in choosing what to invest into from selected ETFs, unit trusts and DBS digiPortfolios.

DBS digiPortfolio is a hybrid robo-advisor that allows you to invest into 4 ready-made portfolios starting from $100. These portfolios are managed by a team of DBS portfolio managers in alignment with DBS Chief Investment Office’s views and supported by the technological benefits of data and artificial intelligence.

Estate planning

Having a sound estate plan will give you peace of mind knowing that your assets are handled in accordance with your wishes, and that you have done all you can to ensure your loved ones are taken care of when you are no longer around.

Will and CPF nomination

Having a valid will ensure that your family’s well-being is taken care of, especially if you have a special needs family member who may need more financial attention. It will circumvent any misinterpretation of your wishes after your demise and prevent unnecessary delays in the distribution of your assets.

Any savings in your Central Provident Fund (CPF) cannot be distributed via the will. As such, you must set up your CPF nomination which can be easily done online on the CPF website. If you do not have a CPF nomination, your savings will be distributed according to Singapore’s intestacy laws (or Islamic inheritance law).

If you have a child with special needs, you can choose to make your CPF nomination under the CPF Special Needs Savings Scheme (SNSS). This allows your CPF savings to be distributed to your nominated child each month instead of the standard lump-sum payment.³

Remember to keep your will updated regularly, especially if there have been any changes in your life stage or family situation.

Read more about: The importance of a CPF nomination

Lasting Power of Attorney (LPA)

An LPA is a legal document that enables a trusted nominee of your choosing to make decisions on your behalf in case you lose the mental capacity to do so. These decisions include your personal welfare, property, and financial affairs.

Having an LPA in place provides the assurance that in the event you are mentally incapacitated, there will still be a trusted person to make pertinent decisions on your behalf for you and your loved ones.

Trust

A trust is another means by which you can distribute your estate. It is a legal arrangement that allows an appointed trustee of your choice to administer and manage your assets for the benefit of your loved ones. As this is legally binding, your trustee has a legal obligation to keep or use your assets in accordance with the agreed instruction set out in the trust.

While these are usually offered by professional trust firms and banks, there is also the non-profit trust firm Special Needs Trust Company (SNTC) which has been set up by the government. The fees for this are heavily subsidised by the Ministry of Social and Family Development (MSF), making trust services for special needs individuals affordable.

For instance, the one-time set-up fee of $1,500 for a trust works out to just $150, after taking into account the 90% subsidy.

The benefits of the SNTC² are as follows.

1) The principal value of the trust fund is guaranteed by the government.

2) Regular reviews are conducted to check on your beneficiary’s well-being.

3) There are trained social work case managers to advise you in your planning for your beneficiary.

Put on your oxygen mask

Planning for a family member with special needs can be overwhelming at times. Having to plan for yourself on top of that might seem like an additional burden, but at the end of the day every bit of work done now will count for peace of mind in the coming years.

Remember to carve time out for both you and your spouse, even if it means requesting help in looking after your child every now and then, so that you do not experience burnout.

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Sources:
¹ Ministry of Health Singapore, CareShield Life, “FAQs”. Retrieved 7 Sept 2023.
² SNTC Special Needs Trust Co., “Trust Services, FAQ”. Retrieved 7 Sept 2023.
³ CPF Board, “Special Needs Savings Scheme for children needing long-term care”. Retrieved 12 Sept 2023.

Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.

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