November 13, 2014

Should Charitable Giving Come Before Retirement?

It feels good to be generous. Jesus commended a poor widow who gave all she had to live on, but is it realistic in today’s world to give before meeting other financial obligations? According to an article by USA Today, a third of people in the U.S. have less than $1,000 set aside for retirement. Should charitable giving take precedence over saving for retirement, college, emergencies and other goals?

Starting with seed money

Business owners understand the concept of having seed money. It’s the money they use to purchase equipment, supplies and other start-up costs. If you want to retire, you need “seed money” in an investment account that can grow with the help of compound interest. As your seed money multiplies, you can take a portion to use for charitable giving when you are retired. It’s easier to give out of your abundance over time. You can also have a separate investment account out of which you make withdrawals for charitable giving.

Receiving a gift back

When you give, you can get something back in return. In the case of charitable giving, you may receive a tax break when you itemize your taxes. If you are wise to invest through a Roth IRA, any earnings you take out in retirement are tax free. Also, if you wish to use your Roth for charitable giving when you are young, you can still take out the money you contributed. No taxes are due as long as you don’t touch the earnings until retirement age.

Giving beyond the grave

Some people rather give while they are living so they can see how their donations help other people. Experienced financial service firms can help you with estate planning so the wealth you’ve acquired while you are living can go to family and for specified charities. You can consider your retirement account as a source of charitable giving when you are gone.

Saving for retirement and giving to others do not have to be conflicting financial goals. According to a Harvard Business School study cited by U.S. News & World Report, charitable giving makes you feel wealthier and happier. The more you contribute to the lives of others, the more you may find your bank accounts overflowing now and in retirement.

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