Personal Finance

We're in our 40s with $8.5 million and a 5-year-old son with autism — how can we secure his future?

Marc Guberti

Published: December 30, 2024 8:11 am

Many parents want to build a nest egg that they can pass on to their children. While many children end up working when they become adults, that isn’t feasible for everyone.

A Redditor recently posted that he and his spouse have a net worth above $8 million, which includes $1.5 million in home equity. However, they have a 5-year-old boy who is on the autism spectrum. They are worried that he may not be self-sufficient in the future and want to build a large enough nest egg to cover their child’s future expenses.

The couple still wants to Fat FIRE, meaning they retire early and live a luxurious lifestyle, but they want to make sure they reach the financial independence number for their child before committing.

I’ll share my opinion on making the money stretch and what to consider before putting a number on how much you need to Fat FIRE. However, these are just my opinions, and it is always good to speak with a financial advisor for personalized advice. 

Start with Your Fat FIRE Number

When a flight attendant explains safety procedures, the professional will always mention putting on your oxygen mask before assisting someone else with theirs. This concept applies to many areas of life, not just an aircraft. Essentially, bygetting your finances in order, you can help other people get their finances in order as well.

The Redditor in this post has a net worth above $8 million. While it isn’t clear how much they spend each month, that portfolio will be enough for most people.

It’s hard to gauge the type of lifestyle they want to have, but withdrawing 4% per year results in more than $320,000 each year.  Assuming that’s how much they want to withdraw each year, and the stock market maintains its historical returns, they wouldn’t have to work much longer for their FatFIRE Number.

Calculating Your Child’s Financial Independence Number

Figuring out the financial independence number for an autistic child’s expenses is a bit more complicated. It revolves around assumptions you make about annual expenses, the portfolio’s annual returns, and how long you expect to live.

It’s easier to start by calculating annual expenses with current money. If your child’s annual expenses come to $100,000 and you want that $100,000 to represent a 4% withdrawal, you would need a $2.5 million portfolio for your child. That’s without including any applicable taxes.

However, what costs $100,000 today will likely cost more in the future. A couple that expects to be around for another 40 years will see inflation creep up by roughly 2% each year for an additional 40 years. With this anticipated inflation growth rate, what costs $100,000/yr today will cost $220,804/yr in 40 years.

If your child needs to receive $220,804 each year from a 4% withdrawal, they need a $5.52 million portfolio in 40 years. Asset appreciation can help you reach this number sooner, especially if you still have a lot left over from your portfolio that you can pass on to your child.

Letting Annualized Returns Do the Work

Most people invest in order to beat inflation. Many assets give you the opportunity to increase your purchasing power instead of letting the funds gradually deteriorate in the bank.

While a $5.52 million portfolio may sound daunting, the portfolio only needs to reach that level within 40 years, assuming that the assumptions hold true. However, if the portfolio generates an annualized 8% return over the next 40 years, you only need $254,091 in today’s money. Then, you can let the portfolio ride without making any withdrawals during your lifetime.

It’s a bit risky to call it a day at $254,091 and assume that the 8% annualized returns remain consistent. However, it shows that compounding can help you on the journey.

Parents in this scenario may want to contribute more than $254,091 if they can. However, you can invest much less than $5.52 million in your child’s portfolio and still end up giving them a $5.52 million portfolio within the next 40 years.