The landscape of retirement is constantly shifting. Many people are living longer and that means the time they spend in retirement may be longer. This extended period presents a unique opportunity to not only enjoy the well-deserved leisure you’ve earned but also contribute to causes you support.
Contributing to a cause greater than yourself may foster a sense of purpose, strengthen social connections, and combat feelings of isolation that may accompany retirement. But there’s also that unique decision you face of how to support these causes while making your retirement last.
As an increasing number of retirees seek to find a deeper purpose into their golden years, understanding how charitable giving impacts that sense of purpose and retirement planning may provide you some direction as you navigate your later years.
Charitable giving involves donating money to organizations and causes that you support, allowing you to make a positive impact on the world.
You may wonder what benefits there are to charitable giving. Supporting causes you care about and whose missions align with your values may be a fulfilling way to give back to society. Depending on your location and the type of donation, you also may receive tax benefits. (Please consult a tax professional for specific tax advice.)
As you consider charitable giving within your retirement plan, there are a few factors to think about including the reputability of the organization you wish to donate to, how your donation may be used, and how much you can afford to give within the constraints of your budget.
When it comes to charitable giving, you may maximize your financial impact by considering these options:
Classic cash donations are a very common method where you can donate money directly through the charity's website, mail them a check, or set up recurring donations to spread your giving throughout the year. This method may be most convenient and offers potential tax benefits depending on your location.
Donating appreciated assets includes stocks, bonds, or other assets that have increased in value may be a smart tax strategy. By giving appreciated assets, you may avoid capital gains taxes on the increased value. Consulting a financial advisor is important to know if this aligns with your overall financial goals and to navigate the transaction smoothly. It’s also important to consult a tax professional for specific details.
Donor-advised funds may offer more flexibility. You contribute assets to a charitable account and recommend grants to specific charities later. This allows you to bunch charitable deductions for tax purposes, like your potential returns. For further tax information, please consult a tax advisor, and for more information on donor-advised funds, consult a financial advisor.
There is also an indirect way to give called cause marketing. Supporting companies that donate a portion of their proceeds to charity allows you to contribute while making purchases you might make anyway. It’s important to research the company's commitment to the cause to know where your dollars are going.
The best financial option depends on your personal circumstances and financial goals. You may consider factors like your budget, tax situation, and long-term financial plans when choosing a giving method. Consulting with a tax professional and/or financial advisor may be helpful in navigating the most strategic approach for your charitable giving.
A Qualified Charitable Organization (QCO) is a non-profit organization that qualifies as tax-deductible for donors by the IRS. These may include religious, educational, scientific, or veteran’s organizations. You may potentially reduce your taxes by deducting your contributions because these non-profits are primarily charitable and meet specific criteria. This includes being tax-exempt under section 501(c)(3) of the US Tax Code and focusing on activities like education, science, or helping children and animals. You can search the IRS website to confirm a charity's QCO status.
Charitable giving can be a fulfilling way to leave a legacy and make a positive impact. But how can you integrate charitable giving into your retirement financial plan?
You may consider bringing this up next time you meet with your financial advisor. You may start by outlining your charitable goals and discussing your budget, including retirement income and expenses. Depending on your situation, strategic charitable giving can offer tax benefits and your advisor may explore options like donating appreciated assets (stocks and bonds) to avoid capital gains taxes, or utilizing Qualified Charitable Distributions (QCDs) from your IRA to fulfill minimum required distributions while supporting charities. (You may also consult a tax professional for specific tax advice.)
The more information you share with your financial advisor, the better they may be able to tailor a charitable giving strategy that aligns with your retirement goals and values.
Important note: This blog section regarding integrating charitable giving in your retirement planning is for informational purposes only and should not be considered financial or tax advice. Always consult with a qualified financial advisor and tax professional to discuss your specific situation and explore the best options for you.
Charitable giving and retirement planning may be two very important aspects of your financial well-being. It is possible to integrate them but you may also consider talking with financial and tax advisors about the challenges and pitfalls you may encounter.
While charitable giving may be emotionally fulfilling, there are challenges to consider for long-term impact. Making impulsive donations may not align with your values, so planning and researching charities beforehand is important to consider. Transparency is also important so you know where your money is going. You may want to be mindful of your budget and create a sustainable giving plan that won't strain your finances in the future.
As for potential hurdles, you might underestimate how much you'll actually need in retirement, especially for healthcare and unexpected costs. Market ups and downs can also threaten the nest egg you've worked hard to create. To address these challenges, you may consider working with a financial advisor to create a diversified investment plan and build in flexibility to adapt to your changing needs and giving goals.
Discussing your charitable giving aspirations with a financial advisor may provide clarity into how best to proceed so you can reap the benefits of your hard-earned retirement while also contributing to causes you care about.
Interested in learning more about charitable giving and your retirement planning? Consider attending one of our retirement seminars or webinars, hosted by experienced financial advisors who can assist with all your retirement planning needs.
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