For many people, giving to others is part of their nature. This might mean volunteering, giving your time to help others or support a cause you care about or donating money to organizations that are near and dear to your heart.

If charitable giving is part of your pre-retirement budget, odds are you plan to keep it that way during retirement! However, few retirees plan for charitable giving in a way that leaves them feeling like they’ve successfully supported causes they care about while still being tax-efficient.

Before retirement, you have a few options available to you. You might participate in something called “charitable lumping” where you save money for a year, or multiple years, at a time – then contribute it to charity in one year in order to take a larger tax deduction come filing season, or maybe you give to a donor-advised fund (more on this in a second). However, when you retire, you have a few additional options available to you when it comes to organizing your charitable donations.

Let’s explore what options you have for donating to charity in a tax-efficient way during retirement, and how you can make sure that charitable giving gets incorporated into your retirement budget.


Donor Advised Funds

Donor-advised funds are often used by people before retirement. A donor-advised fund is a pretty cool concept: it allows you to contribute small amounts at a time to the fund. Your contributions to the fund mature over time, and then you’re able to distribute larger sums to your favorite charitable organizations.

Donor-advised funds also give you a tax benefit, which can be helpful for people who are itemizing their taxes some years when their income and deductions make sense to do so, but take the standard deduction in other years. However, when you retire, your tax situation changes a little bit. You have required minimum distributions, and income from pensions, that are taxable – but your income isn’t going to dramatically change year-to-year like it may have before retirement.

As a retiree, you can still use donor-advised funds – but in a different way. Many retirees choose to contribute to a donor-advised fund throughout their retirement, just as they would have contributed to a charitable organization or a donor-advised fund before retiring. Then, they make their favorite charitable organization the beneficiary of the fund. This is an estate planning move that can help you to build a legacy long after you pass away – while still incorporating giving into your retirement budget!


Qualified Charitable Distributions

Another way you can give to charity during retirement while mitigating the impact of taxes on your retirement income is to give Qualified Charitable Distributions (QCDs) from your retirement accounts. A Qualified Charitable Distribution is a Required Minimum Distribution that, instead of taking yourself, you give directly from your retirement account to a charity of your choice.

QCDs count toward your total annual RMDs, and can help to offset the amount of taxes you have to pay on your accumulated savings. Currently, retirees can give up to $100,000 each year through QCDs. This strategy may make sense for people who have plenty of cash flow coming from a pension, non-tax-deferred retirement accounts, Social Security, and their tax-deferred retirement accounts – and can give a portion of their tax-deferred RMDs to charity without feeling like their budget is suddenly too tight.


Understand Your Budget

Whether you’ve decided to donate to a donor-advised fund, leverage QCDs, or just continue to contribute to charity directly during retirement – it’s important to understand your budget. Generally speaking, retirees spend notably less than they did when they were employed. Of course, you may find that your budget shifts somewhat – you may be spending more on travel, or gifts for your grandkids who you now get to see more often, and less on transportation or morning coffee on your way to work. But when you plan to spend less, you often plan to save less, too, by default.

A lot of retirement savings equations estimate that you should only need 70-80% of your pre-retirement income during retirement. However, if you plan to give to charity as a retiree, or donate a notable portion of your savings to charity as part of your estate plan, you need to make sure your budget (and your savings) can support your philanthropic goals. Under-saving, and expecting to be able to spend and donate in the same way you did before retiring could be a problem. It’s best to understand your budget going into retirement and incorporate charitable giving ahead of time.


Make a Plan

It’s been said that hope is not a strategy. Hoping to continue giving to charity in retirement doesn’t guarantee that, when push comes to shove, donating will be part of your regularly-scheduled financial routine. Making a plan ahead before you retire, or adjusting your plan after retirement to include charitable donations, can help you continue to support the causes and organizations you’re passionate about while still planning ahead for taxes, cash flow, and more.

Need help? Contact us today. We’d love to help walk you through how to build your retirement plan, and how to incorporate charitable giving into your strategy.

Tony Velasquez runs Wisely Advised, LLC a full-service Registered Investment Advisory Firm offering Financial Planning, Accounting and Investment Advisory services to individuals, families, and businesses.