“Spending generally declines during retirement for most budget items, but charitable giving tends to buck this trend.”
There’s a new study from the Women’s Philanthropy Institute (WPI) that examined the spending of American households, as they moved from working to retired. Findings reported in CBS News’ Moneywatch article, “How to fund your charitable giving in retirement,” include that married couples and single women tend to maintain the same level of charitable giving, both before and after they retire but single men reduce their giving, as they leave the workplace.
The report also found that single and married women are not confident about their financial health during retirement and both groups are concerned about not outliving their savings. Since women tend to live longer than men, it is not an unfounded fear.
Can retirees continue to be generous to nonprofits they care about, without putting their retirement funds at risk? The answer is yes, but it must be done mindfully.
First, don’t think of your retirement savings as a giant pot of potential donations.
Consider, instead, that your retirement savings are a portfolio that must generate regular income. An important part of your retirement portfolio should be the monthly “retirement paychecks” that need to last a lifetime. Your portfolio should be structured in such a way that the funds will generate income, regardless of the stock market’s performance. You can then supplement these paychecks with monthly or annual “retirement bonuses” that will also last for life but may fluctuate depending on market performance.
Once your portfolio and your deaccumulation plan is in place, then you can pay for charitable giving with money from either the paychecks or “bonuses,” depending on your situation. Plan for charitable giving, so that you are not digging a financial hole.
Another planning method: if you are 70½ or older, you can make a “qualified charitable distribution” directly from your traditional IRA. The distribution won’t be included in your taxable income and in effect is deducted from your taxable income. The distribution can also be used as your Required Minimum Distribution (RMD).
Qualified charitable distributions have some limitations. They are limited to $100,000 per year and they cannot come from Roth IRA or 401(k) plans. If you have large 401(k) plan and want to use some of that money for charitable giving, you’ll have to roll those over to an IRA platform that does allow funds to be donated to charity.
The WPI report also mentioned that single women and married couples are more likely than single men to volunteer their time in retirement. There is significant proof that volunteering at any age creates emotional and social benefits, while helping the community.
Planning for retirement should include an estate plan and a giving plan that includes giving your time as well as money. If you don’t already volunteer, now would be a good time to identify charitable groups that have meaning for you. If you don’t have an estate plan, speak with an estate planning attorney to also put that plan in place.
Reference: CBS News Moneywatch (Aug. 22, 2018) “How to fund your charitable giving in retirement”