As I was recently helping an older relative with her tax return, I noticed a tidy file containing receipts for charitable gifts that she had made throughout the prior year. She's not a wealthy person and the gifts weren't huge, but when I commented on them, it was obvious that she took great pride in her ability to help her favorite causes. Homeless animals, needy children, and mentally handicapped adults, among others, had all been beneficiaries of her generosity throughout 2010.
In addition to the tax breaks available on charitable contributions, numerous studies have corroborated that there's a psychological benefit of charitable giving--the so-called "helper's high." A growing body of research also indicates that altruism may be associated with improved physical health, too. Studies of recovering cardiac patients showed that those who provided emotional support to other patients had better survival rates than those who did not, for example. Another study demonstrated that the release of endorphins that often accompanies a good deed can lead to a decrease in pain.
Of course, the recent recession and corresponding market downturn have crimped many seniors' ability to give. Many retirees are struggling to make ends meet themselves, or are helping kids and grandkids with college savings or balancing their own household budgets. But like my relative, you don't need to be a high-rolling Neiman Marcus shopper for charitable giving to be a part of your life, even during retirement.
Here are some tips to ensure that you get the maximum bang for your buck.Tip 1: Stress-test your portfolio's longevity before making financial gifts to charity.
Before deciding how much to give to charity, a key first step is to make sure you're thoroughly comfortable with your nest egg's ability to last throughout a very long retirement. Numerous tools available on the Web--including Morningstar's Asset Allocator
and T. Rowe Price's Retirement Income Calculator
--can help you evaluate whether your portfolio can support your planned withdrawal rate, including charitable contributions. (Just bear in mind that these calculators' asset-class return expectations may be overly sunny, as outlined in this article
.) If there's a possibility of falling short, a better option would be to defer charitable lifetime gifts and instead weave charitable giving into your estate plan (more on that below).Tip 2: Consider a gift of time.
If it turns out that charitable gifts during your lifetime are unaffordable, you can still make a difference by volunteering your time at your favorite charity. Doing so won't earn you a tax deduction, but getting out and about to help in your community will likely provide even more of the feel-good effects that you experience when giving cash or writing a check.Tip 3: Check up on the charity's effectiveness.
If you're in a position to make a financial contribution to a charity, it's only natural to winnow down the field to those causes with which you have a personal or emotional connection. But don't rely solely on your heart when deciding where to contribute. Web sites like Charity Navigator
rate charities on their efficiency, showing you what percentage of their revenues go to actual programming and how much goes to administrative and fundraising expenses. Because charity-rating sites rely on public filings for their inputs, the data may not be up to the minute, but it's still a good way to get your arms around an organization's effectiveness. In its rating system
, Charity Navigator downgrades charities that are not spending at least two thirds of their budgets on actual programming; ideally, your favorite charity will boast numbers much higher than that.Tip 4: Understand the rules about deductibility.
One of the big perks of making charitable contributions is that you may be able to earn a tax deduction on your gift, assuming your itemized deductions exceed the standard deduction. But those deductions are subject to certain limits. While gifts to most public charities will be tax-deductible, contributions to certain organizations, such as political groups and foreign charities, may not be. Moreover, if you're contributing a very high amount of your adjusted gross income to charity, the deductibility of your contributions may be limited. The limits depend on the type of charity you're contributing to--most contributions to public charities are fully deductible as long as your contribution doesn't exceed 50% of your adjusted gross income. If you've contributed property, the deduction is normally equal to the property's fair market value at the time of the gift, assuming the property is in "good condition or better."