Once someone retires, much of their “normal” expenses go down…sometimes significantly. When this happens, it opens up the opportunity to “give back” to charities and to be more philanthropic. But can you be philanthropic and still have enough money to live on in retirement? Most say you can if you do some quality planning and think ahead.
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 very confident with their financial health during retirement. And both groups are concerned about outliving their savings since women tend to live longer than men. While some disagree with this concern, it is not an unfounded fear.
So the real question comes down to whether or not retirees can continue to be generous to nonprofits they care about without putting their retirement funds at risk. The short answer is yes…but it must be done carefully and with some planning. There are several factors to consider when you want to start or continue your philanthropic donations.
First, don’t think of your retirement savings as a giant pot of potential donations. Retirement savings are designed to get you through retirement. Any extra on top of that amount can then be considered “discretionary” savings that you can do with as you please…including your philanthropic desires.
It’s important to always remember your retirement savings are a portfolio that must generate regular income. A key 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 retirement income is in place, then you can pay for charitable giving with money from either the paychecks or “bonuses,” depending on your situation. If you plan for charitable giving in such a way so that you are not digging yourself into a financial hole you will have much better control over your finances and much less anxiety.
Second, consider another option for charitable giving if you are 70½ or older. If you are over this age, 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). There are a lot of tax advantages to directing money from your traditional IRA account into your charitable giving.
However, 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 a 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. This interim step of moving the funds into a qualified IRA account can save thousands in taxes…which means more money available to give to your charities.
Finally, the WPI report also stated 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 in addition to helping the community.
Planning for retirement should always include an estate plan and a giving plan. These should include the giving of your time as well as your 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 so you have a well thought out plan for how you can live well into retirement, give to the charities you want to support, and leave a lasting legacy to your loved ones.