How to fund your charitable giving in retirement

Spending generally declines during retirement for most budget items, but charitable giving tends to buck this trend. A new study, conducted by the Women's Philanthropy Institute (WPI), examined the spending habits of American households as workers transitioned into retirement. It found that married couples and single women tended to maintain their levels of charitable giving both before and after retirement. Single men, however, tended to reduce their charitable giving as they left the workforce.

Interestingly, the WPI report found that women, both single and married, are generally less confident than men about their financial health in retirement, and they're particularly focused on not outliving their savings. That's a reasonable fear, given that women tend to live longer than men.

What's the best way for all groups of retirees -- men and women, both single and married -- to donate to charities without worrying about running out of money? It's a mistake to simply consider your retirement savings as a pot of money from which you can write checks to charity. That's a good way to outlive your savings if you're not careful.

Instead, you should use your retirement savings to generate a portfolio of lifetime retirement income. An important part of your retirement income portfolio will be the monthly "retirement paychecks" that are guaranteed to last the rest of your life and won't drop if the stock market crashes. Then, supplement these paychecks with monthly or annual "retirement bonuses" that will also last for life but might fluctuate based on investment performance.

Once your portfolio is in place, you can pay for charitable giving with money from these paychecks and bonuses. Be sure to budget your giving as a planned expense along with all your other living expenses. This way, you can give to charity knowing that you won't outlive your savings.

Here's another planning method that can boost the effectiveness of your charitable giving: Many people are worried that charitable giving might decrease as a result of the recent changes in the tax law that could significantly reduce the number of taxpayers who itemize their deductions. This will make it difficult to deduct charitable contributions from your taxable income. 

However, if you've attained age 70-1/2, you can make a "qualified charitable distribution" directly from your traditional IRA. In this case, the distribution won't be counted in your taxable income, in effect deducting the contribution from taxable income. Such a distribution will also count toward your required minimum distribution.

Qualified charitable distributions are limited to $100,000 per year, and they can't be funded from Roth IRAs or 401(k) plans. If you have substantial savings in a 401(k) plan and want to use some of these funds for charitable giving, you'll need to roll over your savings to an IRA platform that allows you to write checks.

The WPI report also found that single women and married couples are more likely to volunteer in retirement than single men. It turns out a substantial amount of research supports the idea that volunteers enjoy benefits to their own health and even financial security, while making a substantial contribution to their communities. This research is documented in a report titled "Hidden in Plain Sight: How Intergenerational Relationships Can Transform Our Future," prepared by the Stanford Center on Longevity. If you don't currently volunteer, it may be an activity to think about pursuing during retirement.

Planning for charitable giving and volunteering might both be important parts of your retirement planning, not just to give back to your communities, but for your own enjoyment of life as well.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.