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How to estimate cost of lifelong care for child with special needs

child with teacher
Financial planning for a child with special needs is incomplete without a target corpus that would take care of the financial needs of the child. An expense sheet or financial planning sheet will not be enough for all the calculations and planning. However, to begin with, a family can look at the bare minimum expense the child would require every year.

Parents can calculate the current expenses of the child and adjust them for inflation to calculate the desired corpus.

Parents can calculate detailed expenses for their child who needs special care by adding every minute expense. A detailed expense sheet becomes all the more relevant if the child may not have a full-time career.

Next, the parents need to assume the life expectancy of the child. We have assumed the child at present is 5 years and will live till 70 years.

Next step is to calculate the present value of total annual expenses needed for the upkeep of the child.

Look at the DIY illustration below for calculations:
Living Expenses (p.m)
Day to day care assistance (p.m)
Child's personal needs (p.m)
Monthly cost of special/ inclusive schooling
Cost of special equipment (p.m)
Health needs (p.m.)
Social/recreational (p.m.)
Miscellaneous p.m.
Current monthly expense
Yearly expense (Pmt)
Child's age today (yrs)
Life expectancy (yrs)
Child's lifetime years to be planned (Nper)
Expected investment returns
Real returns* (Rate)
Corpus required today (Present Value Formula in excel)
Benefits from employer (EPF)
Total corpus required today (Corpus required today - employer benefits)
*Real return = ((1+nominal investment return%)/(1+inflation rate%))-1
Source: Financial Planning for Families Having Children with Special Needs, written by Jitendra P.S. Solanki, founder, PlanSpecialNeeds

Actual expenses for every child will vary depending on the needs. You can change the figures and calculate present value in excel.

To calculate present value, you can go to ‘Formulas’ tab in the menu bar on an excel sheet and fill in the relevant details: Rate, Nper and Pmt as mentioned in the illustration above.

We have used ‘real returns’ and not expected returns from investments as it considers the ill impact of inflation on the investments. Real returns show the true picture.

Once you have calculated the required corpus, you can deduct the amount of benefits you have accumulated over the time. For instance, you can check your EPF account balance and deduct it from the corpus. This will ease the pressure.

This exercise gives you the amount you will need today to take care of your child’s day to day needs throughout life.

Also read: Use 'bucket strategy' to invest for children with special needs
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