I am searching for advice on how to determine how much I should be donating. Can anyone give me some rules of thumb on what percent of my taxable income I should be giving away? IF I am no longer working and have $4M outside of my home in assets - how do I take that into account in my calculations. Does my networth come into play even when I a working. How do I determine - what percent of my netwroth is ok to give away (if you recommend not just taking it off a net income figure)
Would love your opinion. Do you know any books on the subject to give me guidance?
This is a great question. It's one which, unfortunately, has no consistent answer across the board.
The most commonly cited rule of thumb is a 10% tithe.
I'm going to deviate from that answer and hope that I don't get struck by lightning. First and foremost, you have to make sure that your family is taken care of. No point in giving to charity if you then have to receive charity in return. It's a circle and money will fall out of the system somewhere.
That's not really your case, though. Unless you are addicted to having caviar flown in from the Black Sea every night, you should be nowhere near a money in = money out situation.
For you, I'd say to take what you'd need to ensure that you can live the life that you want for the rest of your life and meet the other goals you want to meet (such as an estate for the kids, etc.). I have no idea what that number is, but let's say it's $3M. Everything else would be gravy. So, with the remaining $1M, you can do whatever you want with it. If you want to give to charity, you could give $1 or $1M. It's your money, and your call for what to do. Others will say that you have a moral obligation to give to charity, and they're entitled to that opinion.
There are ways to accomplish those charitable goals, such as CRATs and CLATs and insurance planning which are beyond the scope of this question.
It's really up to you and your moral compass as long as what you give doesn't put you at a point where you then require support. I will suggest this, though - whatever you choose to do, give it in person. Both you and the recipient will get much more out of the donation if it's done personally.
Sam - This is a profound and very personal question. I would suggest 2 books for this topic. The first dealing with the percentage and the second on the best use of the donation. The first book would be the Bible and its guidance for 10% tithing. If you are taking 4.5% of your investment portfolio as income and receiving Social Security, that would suggest approximately $20,000 a year (10% of $200,000). This is a useful but not definitive answer. You should also consider what your interest in leaving part or all of your estate as a legacy. The second question that I would ask you, and I believe is as important, deals with where you will donate this money. Another book that I would suggest is "It Ain't What You Give, It's the Way That You Give It: Making Charitable Donations That Get Results" by Caroline Fiennes. This will help give you guidelines on how to be effective with this generosity. As philanthropist Andrew Carnegie stated, "It is more difficult to give money away intelligently, than it is to earn it in the first place." Good luck with your generosity.
I’m assuming you are talking about $4m outside of your retirement accounts, too. If so, one of the ways to think about it would be, "How much of my assets do I not need and would like to see a charity benefit from?"
In some cases we advised our clients to establish a charitable remainder trust with them as the trustees. What that would do is allow them to:
1) Take the deduction as a contribution (subject to some limitations). 2) Withdraw 5 % as income as trustees in the trust. 3) Use the net income to purchase a life insurance policy that would replace the amount donated and go to their beneficiaries. 4) Upon their death the named charity would get the proceeds from the trust as a donation.
In any event it sounds like you should really talk about this with an experienced advisor that can dig into the details of your specific situation with you.
While I never advise that you should allow the "tax tail" to wag the dog, if you contribute more than IRS limits in a single year, you may not be able to deduct the entire amount on your taxes. The amount is limited by your Adjusted Gross Income...as you are no longer working, that number may be relatively small. Consult with an Enrolled Agent or CPA prior to taking action on your desire to support charity.
Sam, you did not make any mention of leaving money to heirs, if any. And there isn’t really any mention of your tax situation With that said, the decision on how much to give to comes purely from your heart and your own thought processes. Read some of the books mentioned above for quidance. Also, if you google charitable giving you will find calculators along with thousands of organizations that will want your money. Though you will find lots of information, BEWARE. Though these companies often do good, if you contact them, you will still likely be speaking to a salesperson that may be overzealous in wanting you to part with your money. Personally, I have 3 charities that I contribute to, and am not inclined to donate to any other charity that I do not have a personal relationship with.
They can be designed a variety of different ways, some of the will provide you income for up to 20 years, and the remainder goes to charity. Some will take into consideration your tax liabilities, and set a design where the charities will get only what you would have paid in taxes anyway.
Though from what you have said, it does not appear that you are above the estate tax threshold to have to pay estate taxes. But things can also change. On one knows what the federal estate tax threshold will be on the day you meet your demise.
I would recommend you do a little research to truly understand yourself what your objectives are. You may want to seek out a local financial advisor that really specializes in estate planning