When I was in my twenties I didn’t much care about charities. I mean, who really does when they’re younger, anyway? For many people, it takes an event that affects you or the ones you love to get you interested in a specific cause, and I’m no different.
At any rate, I’m bringing this up because I made my big annual donation today.
Now, I’m not one of these guys who feels the need to brag for hours about every couple of dollars that I donate to some organization. That’d be awful — we all hate people who pat themselves on the back while simultaneously asking everyone around them to notice just how special they are. They’re not giving because they want to give, really. I think they just want the ego boost, aka ‘warm glow,’ that comes from writing the check.
By the way, have I mentioned yet that I made a big donation today? Man, I’m feeling pleasantly toasty now, especially after publicly sharing the details on this blog. Mmmm.
Okay, okay — seriously, though, I felt this would be a good opportunity to toss out a few thoughts on charitable giving in the context of early retirement.
- First off, you’re probably used to getting a tax break for your donation. The tax break is based on the fact that your itemized deductions are greater than the standard deduction. Will this still be the case after you quit working? A few that might disappear:
- Business expenses of all kinds, whether they’re for a personal business or on behalf of your employer
- Mortgage interest (many early retirees pay their house off entirely)
- Job-hunting costs
- Child-care credit
- Social security taxes (applicable only if you were previously self-employed)
- Charitable contributions are treated as an expense and are therefore included in your FIRE number calculations. If you can’t give while simultaneously staying under the generally accepted 4% safe withdrawal rate (SWR) off of your retirement assets, please reconsider your decision to donate. Be safe — your first obligation is to your family and yourself.
- If your itemized deductions do exceed the standard deduction, you still need to pay attention to how much you’re giving. If you’re contributions are exceeding over 50% of your adjusted gross income, the donations above that threshold may not be deductible.
The bottom line is that many people are currently getting a decent tax break (25%+) on these expenses because they’re employed. When you crunch the numbers in retirement, you’ll need to remember that this break might disappear and plan accordingly.
I typically give about $1200/yr to charities and don’t expect this to change after pulling the plug on my steady paycheck. I will, however, suddenly be on the hook for the full amount ($100/mo instead of $70ish/mo.) This is because my standard deduction will be greater than my itemized deduction once I’m no longer earning. I suspect this will be true for many people on the RE path.
Want to see how the change in your employment status will affect specific taxable scenarios when it comes to your own philanthropic adventures? Try playing around with Turbotax’s Taxcaster, an excellent planning tool for projecting your financial future.
I didn’t have much growing up. My family received government assistance for brief periods of time for things like school lunches and food stamps.
See, I was the guy getting money back then, not the guy giving money. Once you get used to being in a certain position in the charity food-chain, it requires real effort to update the way you think about things. The rapid and drastic changes to my financial picture took a while to propogate over to my internal view of myself; I didn’t really feel well-off until I’d already accumulated several hundred thousand dollars in net worth, to be honest. Without a catalyst to trigger a change, my default monetary setting was set to hoard. Can you blame me?
But there was more to it than that. In addition, I intentionally assumed a few cynical opinions to help excuse me from parting with my hard-fought earnings.
I’ll list a few out for fun:
My personal individual contributions don’t really amount to anything so, why bother? Example: As a percentage of net worth, $100 means more to me than it does to, say, the Red Cross, who currently controls about 1.6B in assets.
Charities are inefficient at best, and outright corrupt at worst.
I already pay taxes, and taxes support a wide range of social programs designed to help the less fortunate, i.e. I’m already giving plenty.
There are probably better ways to go about achieving the goal of most charities. I don’t want to support one that might even be making the problem it’s trying to solve accidentally worse.
Economics professors are some of the smartest guys in academia, and they give less than average people.
I’m selfish, and it’s OK to be that way because hey, we all are in the end, right? Am I right or am I right?
Many of these reasons are absolutely valid, and I’m in no way coming down on people who keep their money to themselves.
Still, I end up changing my mind about all of this. Turns out, all I needed was that catalyst.
The impetus for change was my friend Ben Sklaver.
Ben was part of my original crew growing up, through grades 7-12, and his family helped me to climb out of the upper-lower class socioeconomic background into which I’d been born.
He went to college at Tufts in Boston, and I went to a different university in the area, which allowed us to maintain our friendship and stay in touch. Thing was, though, he was highly conscious of going to school on his parents’ dime. Somewhere along the lines, during his undergraduate education, he came to believe in the ideal of service to one’s country. He also wanted to do some post-grad studies and felt strongly about footing the bill himself this time, rather than ask his parents to pay additional money for his education. And there it was: Ben wanted to take full responsibility for his own life while simultaneously charting a brave new course to follow into the future. The solution seemed simple. Use the G.I. Bill.
His first few deployments were to Uganda, where he gained skills in community building, infrastructure, and well-creation. Access to fresh water was a real problem for many villages, and his teams worked to solve these issues. After a few years, he worked his way up to the rank of Captain.
During this time, Ben also decided to found a charity on this own — Clearwater Initiative. He formed a dedicated group of people who installed and fixed wells. They also trained villagers to maintain their own equipment, making the projects sustainable over the long-haul.
I remember talking to him between deployments while he was in the middle of all of this. I heard firsthand the passion in his voice, the dedication that he felt to the mission of helping people. He was absolutely convinced in the military’s ability to create positive change through good works. (Incidentally Ben was, at no time, a part of units intended strictly for combat.)
So when we got together, I’d share updates about my life (work sucks, I am going to retire early) and he’d share updates about his life (Uganda is unstable, hundreds of villages need so much help, it’s heartbreaking but I’m working to fix some of the systemic problems, and that feels great.)
It’s safe to say he was justifiably skeptical about my RE plans, too.
What are you going to do with the rest of your life, after you quit? Don’t you want to do something useful? Give back?
No. Not really.
Do you even support charities?
Nope. (Here I cited many of the reasons I mentioned in the Not Giving section.)
That’s kind of depressing, dude. How can you feel good about your own life without helping others? You’re unbelievably fortunate, compared to the vast majority of people in the world.
It’s a special skill I have, I guess.
Sorry, that’s just lame. You could try to start now, you know. It’s not too late. Help me help folks in Uganda. We’re saving real people there — improving the quality of life for entire communities. Creating wells and providing access to clean water is absolutely revolutionary, freeing up time for education, improving health and nutrition, and ultimately cutting down on population growth down the line, believe it or not. It’s not just about preventing people from dying — it’s about building a completely different and better way of life for others individually and communally, while simultaneously tackling larger world issues. It’s about incredible positive transformations.
OK, ok. I’ll donate! Fine! For the record, sometimes I think you’re too damned good. It’s like I’m hanging around a modern day Jesus or something.
You know I’m Jewish, right?
Yeah. So was Jesus, though. For all I know, I’m looking at the second coming right now.
I started small, and it turns out that helping out did feel pretty good. Watch out: Altruism can be habit forming.
Two years after our conversation, Ben was sent on his last deployment. It was the final obligation left to fulfilling his service agreement to the United States. This time, though, the powers that be shipped him out to Afghanistan. The military had need of teams specializing in infrastructure development to create and repair water sources, and as you now know, that was Ben’s wheelhouse. While working on a large project in the remote village of Murcheh, a suicide bomber approached and detonated a device designed to tear humans apart.
It didn’t fail.
I’ve thought long and hard since then about the differences between me and Ben. The biggest gap is in our respective abilities to sacrifice ourselves. Ben gave himself to others every day, whereas I give me to me most of the time.
If I’m a superhero, I have a cheesy, virtually useless power like American Maid or Color Kid.
Ben’s power, on the other hand, was anything but useless. As Infrastructure Man, he built wells, taught villagers critical mechanical skills, saved hundreds of real lives through his deployment work, and later, through his charity, thousands.
So I give. I do it as an act of remembrance and pride. I’m not going to let a fundamentally selfish goal like RE get in the way of providing support to others. Not anymore. After all, I know firsthand how absolutely essential similar support had been to my own family when I was younger, going through hard times. I wouldn’t be the person I am today without those helping hands.
Best of all, giving makes me feel as though I’m participating in the realization of Ben’s vision. His dreams live on.
Do you plan on making charitable donations as part of your own retirement spending?
Note: If you want more information on why I think infrastructure projects in third world countries are a particularly good way to spend your charitable dollars, check out The Life You Can Save by Peter Singer. He recommends giving a minimum of 1% of your annual income to charity, if possible. For RE’ers, I’d change this to a percentage of your annual spending that you’re comfortable with.
Bonus Reading: MMM’s article on giving.