Monday, September 12, 2011

Financial Planning for a Special Needs Child

For most parents, financial planning consists of a few predictable but key items.  First, and most importantly, you draw up a will to make sure that you get to choose the people who are going to take care of your children and manage their affairs.  Next, you buy some form of life insurance to make sure that your family has the funds to get if something unthinkable happens to you.  Finally, you put aside some money each month in some sort of college savings plan to help your child pay for a higher education.  The playbook is pretty standard for most parents.  However, what do you do if you have a child with special needs.

You see, I have been thinking about this question because I have a daughter who is special needs.  She is autistic.  Autism (or more formally autism spectrum disorder) manifests itself differently in every child.  There is a quote I once heard which goes something like this, "If you've met one person with autism, you've met one person with autism."  In my daughter's case, she is non-verbal, does not respond to social cues, exhibits repetitive behavior, has both gross and fine motor delays, and has hyposensitivity to sensory stimuli.  However, she is a wonderful child with lots of spunk and personality, but in her own unique way.

One thing that I've been thinking about recently is what is going to happen to her once my wife and I are gone.  With most children, you only have to answer this question for the first 20 or so years of a child's life.  After that, you assume that your child will be able to take care of himself or herself.  However, in my daughter's case, there is a possibility that she will require care and supervision for the rest of her life.  That means that we will not only have to provide for her until she is 20, but until potentially until she is 80.  That requires a different type of financial planning than what you would do for a regular child.

To be honest, this is something that my wife and I really haven't started thinking about.  We've been so focused on getting her the services that she needs (physical therapy, occupational therapy, speech therapy, etc) that we haven't had time to think about the long term.  I am by no means an expert on the subject, but here is what I have gathered so far.

1. It is key to keep the assets in your child's name small.

If a special needs adult has more than a certain amount of assets in their name, they are disqualified from receiving certain government benefits such as Medicaid.  Therefore, it makes sense to think twice before making your special needs child the beneficiary of any life insurance policy or retirement plan.

2. Set up a special needs trust for your child.

Because you can't leave money directly to your special needs child doesn't mean you can't leave your child out in the cold.  Instead, you can set up a special needs trust, which is a financial account set up for your child's benefit, but which is not counted as part of your child's assets.  Instead of leaving an inheritance to your child directly, you leave it to the trust.  Then the person responsible for the trust (usually a trusted friend or family member) can use the money for the benefit of your child.  The other benefit is that your child may not have the mental capacity to manage this money properly, so it allows his or her financial affairs to be managed by a capable person.  There are some restrictions for what you can use the money, but generally it can be used for extras which are not provided by government services.  Obviously I am not an expert in this area, so you should consult one before you do anything.

3. Consider permanent life insurance.

Remember when I said that most people should consider only term life insurance.  This could be a situation where the other types of insurance are applicable.  In most cases, people require life insurance only during their earning years.  This is because once you hit retirement, you're retirement is paid for and your kids are out of the house, so if you meet an untimely death, your spouse and children won't need the coverage at that point.  Therefore, term insurance covers your needs nicely.

However, in the case of a special needs child, you might want to have life insurance coverage for your entire life, rather than just until you retire.  The premium of term insurance jumps significantly once the "level term" period expires.  For many people, that jump in premium puts the coverage out of reach.  One way around this problem is to buy whole life insurance.  Initially, the premium of whole life insurance is higher than term.  However, the premium you pay in year one is the same as the one you pay for the rest of your life.  Therefore, there are no unexpected premium resets.  Therefore, keeping the insurance in force for your entire life is much easier.

I have also read more "exotic" life insurance strategies, like buying universal life to maximize your insurance amount.  Another is to buy what is called joint life policies, which pay only after the death of both you and your spouse.  The advantage here is that the premiums are less than a traditional policy because you are covering two people instead of one.  Since your child might only need the money when both parents are deceased, this could make sense.

Of course, no matter which type you buy, you should think about leaving the money to a special needs trust instead of your child directly (see above).

There are many challenges to raising and caring for a special needs child.  Because you focus so much on the day-to-day stuff, sometimes you neglect the long term planning.  However, the long term is just as important, if not more so, because you won't be around to implement your plan.  Therefore, you need to be as prepared as you can so your child's needs will be met.  I am going to continue to explore this area of financial planning so that my daughter will be taken care of when my wife and I are gone.

Friday, September 9, 2011

Remembering 9/11: America's Decline Is Greatly Exaggerated

As the 10th anniversary of 9/11 approaches, many are in a reflective mood.  Many news outlets are running stories in remembrance of that fateful Tuesday morning.  Besides the usual "where were you" memories (at work in upstate New York) of that day, my strongest impression of that time was how, in the aftermath, we heard stories of greatness that rose above that tragedy.  We heard about the brave first responders who went into the building when most people's natural inclination would be to leave.  We heard about the search and rescue workers who spent hours upon hours combing through the wreckage, putting themselves at great personal risk.  We heard about the ordinary Americans aboard Flight 93 who averted a fourth attack on that day.  We heard about the millions upon millions of individuals all over the country who put aside their differences to contribute to the relief effort.  In the wake of the tragedy, the best of American came to the forefront and was put on display for all to see.

Ten years later, the mood is much more pessimistic.  We have seen our young men and women die on the battlefield half a world away.  We all felt the effects of an economic collapse the likes of which hasn't been felt in most of our lifetimes.  Jobs which were once done by Americans are done cheaper by people overseas.  Our leaders seem to be at each others' throats, putting politics ahead of the good of the nation.  Our creditworthiness as a nation has been called into question.  Our national debt continues to mount.  Our standing in the world as superpower is being challenged by a rising China.  All the news about American seems so dark that people are wondering aloud whether or not America has passed its prime and is in decline.

Those people are wrong.  In my mind, there are two things that make America great and will continue to keep America great:  opportunity and freedom.

America has always been a Land of Opportunity.  It is a place where hard work and smarts are generally rewarded.  There are stories like that of Andrew Carnegie, who came to this country at age 13, worked as a teenager in a textile factory, and through his hard work ended up as one of the richest men of his time.  However, the bigger story in my opinion is that, for every Carnegie, there are millions of people who came to this country and found a better life, a more comfortable life, for them and their families.  They came here because in their homes, they would have languished in poverty despite their hard work.  However, here in the U.S., our meritocracy allows people who work hard and work smart to get ahead.  Yes, they may not end up billionaires, but they are able to carve out a comfortable life consummate with their efforts.

American remains that land where you generally are rewarded based upon your skills, savvy, and sweat.  Yes there are exceptions as there always are.  Cynics will point to those exceptions and claim that they are the rule.  However, I can't think of many cases where people who are hard workers don't end up rewarded in some way, shape, or form.  Consider the immigrants from all over the world who still come to America to seek their fortune.  In my field (engineering), I work with a lot of people who chose to come to America.  If you ask them why, one huge reason is that America generally is a place where you have the opportunity to make a good living should you chose to take advantage of it.  It is a place where hard work truly is rewarded.  If America wasn't that place, then why do some want to build a fence to keep illegal immigrants out.  If America were that bad, we wouldn't be creating barriers to entry.

The second characteristic that makes America great is our freedom.  We generally have the ability to express our own opinions, worship our own gods, associated with whomever we want, without the Government trying to stop us.  That freedom of expression fosters a vibrant marketplace of ideas.  We are free to debate ideas vigorously without fear that the thought police will knock on our doors and steal us away in the middle of the night.  As such, all ideas are exposed to the light of day where the best can be adopted and the worst can be debunked under the scrutiny of the masses.  By allowing people to say and believe what they want, ideas are subjected to Darwinism, where the worst ideas are cast aside by vigorous debate and the best are adopted.  Obviously, there is still room to disagree, and that's okay, too.  We as a society accept that there will always be differences, but at least by talking about them, we can reach some understand, if not agreement.  Isn't a better to talk about your differences than go to war over them?  When you aren't allowed to express yourself freely, all of that disagreement boils over in civil unrest.  Because we can express ourselves freely, we can influence the course of our nation.  Every few years, we get an opportunity to revolt (peacefully of course) by voting out our old leaders and voting in new ones.  There are many countries where such dissent can only be expressed through a bombs or rifles.

Freedom and opportunity by themselves don't make a country great in a vacuum.  They are facilitators for what really makes a country great:  its people.  After all, a country is just a collection of people.  Freedom and opportunity do two things.  First, they help to attract the best people.  If you are looking for a place to live, wouldn't you want to move to the place where hard work is rewarded and where you can express yourself how you want?  Second, they reward those with the best ideas and the best work ethic, and that helps to elevate the entire nation.  Take the entrepreneur who builds a company from the ground up.  That company not only benefits its owner, but also those who work for the company, and by extension, the community where the company is located.  Consider Mr. Carnegie whom I mentioned earlier.  The foundation which he started over 100 years ago is still benefiting America through its philantropy.

I would ask everybody (including our politicians who seem to be stoking this feeling of gloom and doom) to stop dwelling on what is wrong about America, but what is right about America.  Of course, we aren't perfect; no country is.  However, with freedom and opportunity, at least we have the mechanisms to address our problems.  Because of that, America is not going to decline any time soon.

Monday, September 5, 2011

Going to the Extreme (Couponing, That Is)

You've probably heard about the newest rage to hit the grocery stores:  extreme couponing.  Popularized by the TLC television show of the same name, it is where people use various couponing and discounting strategies to purchase loads of groceries for pennies on the dollar.  After watching the show with my wife on a couple of occasions, I must say that I became quite intrigued with the concept.  I like saving money as much as the next person, but the people shown on the show make me look like a rank amateur.  Therefore, I set off to see if I could learn a thing or two from these pros.  Fortunately, there are a lot of websites out there dedicated to this new rage.  I am purposefully refraining from posting links to these sites for reasons that will become apparent later in this article.  However, a quick google search will reveal some of the more popular sites.

Extreme couponing is quite simple in concept.  For the most part, it consists of four key ingredients:

1. Clip lots of coupons:  This one is pretty obvious.  The best extreme couponers can find coupons from all over the place:  the local paper, Internet websites, home mailers, social networking sites, those little printers that print coupons right at checkout, attached to the products themselves, and so on.  What I've learned is that coupons are everywhere!  Not only that, extreme couponers will obtain multiple copies of the same coupon.  Sometimes that means buying six or more copies of the local newspaper, but they claim that it is worth it.

2. Use the coupons when items go on sale:  Most people use coupons as soon as possible.  However, extreme couponers save them for when the product is on sale at its rock bottom price.  Investors will note that this is the "buy low" rule applied to groceries.  Makes complete sense.

3. Take advantage of store policies:  Extreme couponers will take advantage of things like coupon doubling and stacking.  Coupon doubling is where a store will double the savings of a manufacturer's coupon, up to a certain limit.  Stacking is where you use a manufacturer's coupon and a store coupon on the same item at the same time.  In some cases, the value of the coupons might exceed the sale price of the product itself.  Some stores allow you to use this credit balance towards the rest of your purchase, which an extreme couponers dream come true.  Of course, every store has different policies regarding doubling, stacking, and credit balances.  Therefore, it pays to know what they are before you shop.

4. Stock up:  When events converge to offer an amazing deal, extreme couponers stock up.  They use as many coupons as possible to buy as many of the items as possible.  Then they store the extra items away for when they are needed.  Obviously, some items (think toilet paper) are easier to keep for long periods of time than others (think milk).  Therefore, you better be prepared to use the items.  Unless you are getting paid to buy the items, any deal where you can't use the item is not a deal at all.

Armed with all of this information, I set off to find my own extreme coupon deals!

The first one that I tried was a deal where you could get free single serving bottles of orange juice that was on sale for a dollar by using a dollar coupon available on the Internet.  I drink orange juice all the time.  Therefore, this deal seemed like a no-brainer to me.  Since this particular web site only allowed you to print two coupons from any computer, I ended up printing two copies from my computer, my wife's computer, and our netbook.  Armed with six dollar off coupons, I headed off to the store to claim my six bottles of free OJ.  Unfortunately, I wasn't the only one who knew about this deal.  When I got to the store, there was an empty shelf where (I assume) the bottles of orange juice had been.  As a consolation prize, I bought a gallon jug of OJ using my dollar off coupon, and at the register, the machine printed a $1.50 off OJ coupon for my next visit.  I guess it wasn't a total loss!

Lesson #1:  If a deal is posted on the Internet, it is likely that everybody knows about it.  By the time you find out, it is too late!  That is why I am refraining to reveal my sources on these deals.  (Note that this is similar to what I had said about picking stocks in a previous article).

The second deal that I tried was a buy-one-get-one-50%-off deal on vitamins combined with two $3 off coupons printed from the Internet.  Normally, a 50 count bottle costs $10.  With this deal, I could get 100 vitamins for $9 ($10 for the first bottle of 50 + $5 for the second bottle - $6 for the two coupons).  Armed with coupons in hand, I visited the store.  This time I was in luck because the store still had plenty of the vitamins on sale.  I swiped two just in case the old man behind me was looking to store the same deal, I ran up to the register.  I handed the two coupons to the cashier, and she gave me a look.  She said that since the second bottle was free, I could only use one coupon, not two.  The store didn't allow coupons on free items.  She was an older lady with an air of authority, so I figured that I had misread something and the vitamins were part of a BOGO deal (that's buy-one-get-one free in extreme coupon speak).  I took the coupon back and smiled inwardly at my good luck.  Now I was getting $20 worth of vitamins for $7!  Yippe!  Unfortunately, the authoritative cashier was mistaken.  After I got home and looked at the receipt, I saw that the second bottle was not free - it was 50% off just I had read.

The only consolation was that I got another $2 off coupon for vitamins at the register.  Yay...

Lesson #2:  Don't trust the cashier, regardless of how authoritative he or she might appear.  They don't know all of the sales as well as they think they do.

My conclusion is that extreme couponing is not as simple as it looks.  I'll keep trying to score more deals, but I realize that I still have a long way to go before you see me on TV.