goals

Our Early Retirement Charitable Mission and Donor Advised Funds

We’re huge believers that those of us who are even in a position to consider early retirement are some of the luckiest humans who’ve ever walked the Earth. Financial independence is not something within reach for most people alive on the planet today, and it certainly wasn’t an option for the vast majority of people of past eras either. Even just traditional retirement is not a historical concept, and it’s not something average homo sapiens throughout history could look forward to.

So take the tiny fraction of all humans who’ve ever lived who even got to retire, and then take a tiny fraction of those folks who were able to retire comfortably and securely, and then take an even tinier fraction of that group who can retire comfortably, securely and early – and that’s us in this community. We’re like a tiny speck on Waldo’s hat in a Where’s Waldo? puzzle.

But though we are small in numbers, we possess enormous strength. That ability to decide how we wish to spend our lives, free from the constant worry of money, is a superpower, one we’re lucky to have. And I always love quoting Ben Parker (Peter Parker/Spiderman’s uncle), or maybe just a comic book sidebar, who reminds us: “With great power comes great responsibility.”

Related post: With great wealth comes great responsibility

Just as I urged folks who came to the FIRE panel at FinCon17 to consider this question, I pose it to you as well: How will you use your superpower? Not just for your own benefit, but for the benefit of others, and for the greater good. And might it take the form of a charitable mission? 

Let’s talk about using that power, and about one big tool that’s here to help us: the donor advised fund.

Charitable mission, donor advised fund, charitable giving in retirement, early retirement, financial independence

Charitable giving is enormously important to us. So much so that it has actually made me question whether we really want to retire early, because it will mean being able to give less in the future than we’ve been able to give while working. This isn’t because we’re some amazing, altruistic people. We’re normal people who think selfishly plenty of the time, too, and want to be sure our portfolio covers our needs first.

But through our upbringings and our work, we’ve seen firsthand how very real many of the challenges facing humanity and the planet are for people, a large number of whom do not have the financial or community resources needed to change their situation. So while some problems like poverty may seem to those who’ve never experienced it as a situation anyone should be able to get out of with enough determination and hard work, we’ve seen with our own eyes how different it is when you’re actually in that situation. And we’re not willing to stand by and do nothing, when we are some of the lucky few who have the means to help our fellow humans who haven’t been so lucky.

Psychological research shows that most people give for selfish reasons. The act of doing something to help others gives us a boost in our self-image, and that good feeling we get from it is addictive. That’s for sure true for us, too. We selfishly don’t want to look back on our lives and know that we only looked out for ourselves. We want to be remembered as people who helped where we could and did our best to leave things in better shape than we found them. That is 100 percent selfish on our part, but I’m okay with it, because ultimately that selfishness will mean helping others, and that’s a net positive for society and the planet. If you’re motivated to give by the thought of getting your name etched in granite somewhere, I’m good with that — so long as you give. You don’t have to have a perfect, selfless heart to act selflessly. The action is what matters.


Psst! My first podcast project – The Fairer Cents, hosted by me and Kara Perez – is live TODAY!

The Fairer Cents podcast, with Tanja Hester and Kara Perez

It’s all about women, money and equality, and while it’s super different from what I write about here at Our Next Life, I think a lot of y’all will enjoy it. I’d be honored if you’d check it out, and if you like it, please subscribe and write a review. Writing a review is quick and painless but helps new podcasts get discovered.

Here’s where you can find The Fairer Cents:

iTunes

Google Play

Stitcher

TuneIn Radio

Overcast

(Other platforms coming soon!)

Enjoy!

 


Giving Charitably In Early Retirement

We have a mission in early retirement to go on more adventures, a mission to be more creative, and a mission to figure out what we want to be when we grow up. But we also have a charitable mission, in part because we feel that is our responsibility as incredibly privileged people. (And also because if we don’t give, who will? Data show that rich people are pretty darn stingy with their giving, especially relative to poor people.)

Our early retirement budget is not huge, but we hope that we’ll always have room in it to give. (Keep reading for more on that.) And while we plan to volunteer a lot, volunteering itself isn’t enough. Many nonprofits accept volunteers only in hopes that those volunteers will feel a connection to the organization and later donate money, not because the volunteers are actually that helpful. Oftentimes, training and supervising volunteers takes more staff time and resources than those volunteers return in value. Which is not to say we shouldn’t volunteer, but that we shouldn’t only volunteer. To get their real work done, charities need our money.

Given that the entire concept of early retirement is based on spending far less than you earn so you can save at a high rate, we know by definition that those of us who do retire early will see a large drop in cash flow. And that shift from a larger active income to a smaller passive income could easily translate into a newfound scarcity mentality. And scarcity is the enemy of generosity.

There’s also just the practical matter of less money to work with in retirement, at least if you want your nest egg to last. And that’s what I was hung up on for a long time, worried that we wouldn’t be able to afford to give much in retirement.

Fortunately, a donor advised fund answers both the scarcity concern and the cash flow reality.

The Donor Advised Fund

A donor advised fund is an account you fund to be able to give charitably over time. Funds in a DAF are invested just like in a retirement account, in a range of funds offered by the manager like total market stock index funds, bond funds, money market, target date, large or small cap funds, etc. Unlike your retirement account or other tax-advantaged accounts, you can’t ever get this money back. But otherwise the fund feels very similar to an IRA, 401(k) or 529.

In many ways, donor advised funds are ideal for early retirees, because you can fund a DAF while working and have cash flow, and then spend out your charitable funds in years when you don’t have earned income coming in, and might not otherwise have much to give.

The biggest benefit tax-wise to a DAF is that you get the full charitable write-off in the year you fund your DAF, not based on when you grant funds out. (That’s assuming the alternative minimum tax, or AMT, doesn’t reduce your charitable deductions, as it often does for us.) And if you’re like us and aren’t trying to reduce your tax bill, it’s still an answer to the scarcity problem, because you fund your DAF when you’re flush with funds, and spend it when you’re more constrained.

Choosing a Fund Manager

We decided to open our donor advised fund with Fidelity Charitable, which may be a surprise to the Vanguard lovers of the world, us included. But Vanguard’s donor advised fund options just weren’t as appealing. Here’s a head-to-head comparison of the major factors:

Management fees:

No significant difference (vary by investment option, with the same overall fees)

Minimum to open a DAF:

Vanguard: $25,000

Fidelity: $5,000

Minimum grant amount:

Vanguard: $500

Fidelity: $50

Minimum amount for additional deposits:

Vanguard: $5,000

Fidelity: No minimum

Note: There are a number of other DAF options out there that are comparable to Fidelity’s offering, especially Schwab Charitable. DAFs are also offered by community foundations, though the terms and fees can vary widely. Ultimately, we went with Fidelity over Schwab because Schwab requires additional contributions to be at least $500, and Fidelity has no minimum. We could imagine throwing in a couple hundred here and there and prefer having no minimum.

The minimum to open a DAF with Vanguard was annoying, but not a dealbreaker. The bigger issue was the $500 minimum grant amount and the $5000 minimum for additional contributions. We want to be able to send small increments to a whole bunch of causes, or to give money whenever the urge strikes us, without having to write a bigger $500+ check. And we want to be able to contribute more to our fund in the future even if we have less than $5000 available to do so.

We opened our DAF with the minimum last week, and will put everything over our stretch magic number at the end of the year into it, as well as doing another big round of charitable giving before December 31.

Tax Uncertainty

For those who are concerned about what tax changes may be coming, as Congress debates various options (my advice: don’t get too attached to any of the current provisions. Everything in the bill will change many times), a DAF is also a good answer to potential future tax uncertainty. If you’re worried about losing some of your ability to itemize deductions, then why not open a DAF or add more funding to it this year, while you can for sure still itemize and get the added benefit of compounding? Or if you are a fan of itemizing every other year and taking the standard deduction the other years, you can fund the hell out of your DAF in those itemized years and spend out some of the funds in the standard deduction years.

I may not love the idea of avoiding as many taxes as possible, but I’m way more okay with it if it’s in the service of more charitable giving.

Our Best Case Scenario

I spend most of my time planning for and writing about worst case scenarios. What we’ll do when the next recession comes, which will likely be early in our retirement when we’re most susceptible to sequence of returns risk. What our many contingency plans will be. What we’ll do for health care if the Affordable Care Act goes away. It was worst case scenario thinking that motivated me to want to retire early in the first place.

But we think about best case scenarios, too (I swear we do!), and all of our best cases include being able to make it raaaaaaaaaain for the causes we care most about.

You probably know that the four percent rule – a rule I challenge not based on the percentage itself, but based on the assumption of level spending over time (a concern that JD Roth recently backed up) – gives such a high chance of success that most people who don’t hit sequence of returns peril will, in fact, end their lives with far, far more than they will need to have saved. And if that happens for us, then our favorite charities will be getting some major love when our time’s up, especially if we should happen to die while our term life insurance policies are still active. Leaving a big charitable legacy is definitely a best case scenario for us.

But we don’t want to wait until then to give, because there are so many urgent problems that need our support now. Global warming won’t wait until the first round of FIRErs kick off. People living in poverty and without basic health care here and all over the world need help now. Wild places under threat need protecting today. And if our best case scenario plays out, we’ll be able to give generously in the near term, too. Being able to continue giving regularly is part of our motivation to build lots of extra conservatism into our financial projections, in hopes that our investments will beat the projections and we can donate the overages. Best case = looooooooots of rain for those great organizations fighting the good fight.

The DAF is the third part of this best case planning. If the markets continue to climb, or resume climbing after the next correction, then our DAF investments will grow, and we’ll have more money to grant out each year.

Not Relying on the Best Case

Of course, none of our plans ever rely on best case scenarios. We’ve been extraordinarily lucky in our lives, and we do believe that we’ve played a role in creating some of that luck. But we aren’t dumb enough to think we’re in control of everything, or that we can always expect to have good health or able bodies, or benefit from market tailwinds instead of headwinds.

And having the donor advised fund ensures that we can fulfill our charitable mission no matter what. Even if markets are grumpy for a long time, we’ll still have charitable dollars to spend because once they’re in the DAF, they can’t be used for anything else. There’s no DAF conversion or 10 percent penalty — what’s in the fund is there for giving and no other purpose. So we have to give, whether we can “afford” it or not. That’s something – selfishly – we love.

How Will You Use Your Superpower?

Let’s talk superpowers! Do you have a charitable mission for your early retirement or traditional retirement? Or any other vision for how you’ll make a positive difference in the world with your superpowers? Do you have a donor advised fund? Who did you choose to manage it? For those who haven’t opened one, what’s the biggest hurdle in your mind? Let’s discuss in the comments!

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101 replies »

  1. Thank you for bringing this up!

    While not all of this is directly transferable to my country, the ethical vs. payoff conundrum has been with me since before discovering the FI community. Before that, I had been faithfully trying to deposit a small sum into an environment and climate fund. Of course, after learning about index funds and all that, I was sad to realise that my beloved fund took more than 1% more in fees than even the most expensive index funds available to me… but the environment is important!

    I still haven’t quite found a balance I am comfortable with, where I am happy with both my asset allocation and their ethical contribution to the world. Money is not just math, after all. It is also power and impact. Which is what makes it all the more difficult.

    • And add to your conundrum the fact that many of the “socially responsible” funds actually contain many absolutely irresponsible companies (at least that’s true in the U.S.), and that higher fee becomes even harder to justify. We have struggled with this question a lot, because we agree with you — money is also a vote and a symbol of support. I will say that we feel better about it by focusing not just our investing but also our spending on companies that we see being better corporate actors — paying their employees more, being more environmentally responsible, etc. But there isn’t an easy answer at all!

  2. Wow, this awesome Tanja! I didn’t know much about DAF’s and I feel like I’ve just taken a class on them in a short time. It does sound like a very attractive option for giving. It takes the “pay yourself first” approach to FI and applies it to others. Kind of a “do good first” approach” I guess.

    Now that I’m semi-retired I hope to start spending more time volunteering but I haven’t yet found the right role to hit the sweet spot. But for monetary giving, these DAF’s are something that I will strongly consider!

    • Oh, I love that! “Do good first.” Yes! Definitely check out the DAFs, and for your volunteering mission, ask yourself if there are ways you can use skills you have that not everyone possesses. While doing zero-skill volunteering is a good place to start, you can have a much bigger impact if you contribute your more unique skills in a more substantive way. Good luck figuring it out!

  3. What a great article! I really like your generosity and the fact that you recognize your privilege. So many people out there who can’t even get a minimum wage job :-(

    We believe education is one of the solutions and that’s why we have a lifelong dream of setting up school(s) for kids, especially underprivileged kids.

    We tried to start the project this past spring, but we realized how expensive and time consuming it was, especially dealing with government bylaws and bureaucracies.

    Thus, the project has been suspended until we FIRE and have enough money and time to manage the project. That’s why our FIRE target amount is a little high @4M

    99to1percent recently posted…
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    • Thank you! And good for you guys for setting an audacious vision for your contribution! I love that you’re aiming high and adjusting your FIRE goal accordingly.

    • Your goal to set up schools for kids is awesome. I used to volunteer at a center in Detroit where impoverished children went to play after school, and I would help with homework and other things. Education makes a world of difference, and unfortunately there are so many who don’t have the resources.

  4. Tanja, I’ve been reading for a while now, and one of the things I love about your blog is your emphasis on generous giving and environmental/social causes. I really miss this point of view in a lot of other FIRE blogs.

    I grew up below the poverty line with parents who worked in non profits, but who always emphasized tithing, and charitable giving beyond that. So even as a teenager and a broke college student I gave. My husband and I are in an interesting position now, in the start-up years of our small organic farm. Money is very tight, and we aren’t able to give like we used to/want to. I take comfort in the fact that the business we are building will make the world better in some small way. In addition, we’ve evolved a lot of our purchasing over the years. We support other small businesses when we can. We shop at our local co-op that gives it’s employees benefits and great pay and vets its products extremely well, we buy fair trade coffee and chocolate, and natural cleaning and beauty supplies. I’d rather spend more on items that are produced ethically both for laborers and the environment, than buy cheap things so that I can afford to “give” more. And one day hopefully we’ll be able to both purchase ethically and give generously!

    • Hi Carissa! Thanks for that nice note. :-) I think giving is soooo important, so I can’t help but talk about it. ;-)

      Your story of growing up below the poverty line is so powerful — and yet another data point to support the larger reality that poor people give a far, FAR larger percentage of their income than do the rich. (Come on, rich people! Do better!) As for what you guys are doing now, I think you shouldn’t be so hard on yourself and expect that you’ll be able to give generously at every moment of life. Right now you’re making an investment in yourselves that will pay dividends to the causes you wish to support over many, many years, and that’s a wonderful thing! Also kudos for being so intentional about your spending decisions — we do our best to do the same!

  5. Like most people here (I presume), we have not opened a DAF. It’s on the radar for the future, but it isn’t in the cards today. We still have mortgages to pay and college educations to fund. We have a lot of tax deferred retirement accounts available to us with things like solo 401ks and such. Typically, we don’t have a lot of spare cash after all those.

    The bright side is that in all the likely scenarios we’ll be creating a bunch of cashflow down the line with fewer expenses. That’s when we’ll be in a better position to contribute larger sums of money (vs. the small amounts we do directly today). In the meantime, I consider my work in exposing MLM pyramid schemes a charitable service.

    • We hadn’t created a DAF before now, either, but we DID give a lot to charity each year. I’d definitely urge you guys to take a look at what else you could give, even if it means shrinking your personal investing a little bit. (Not asking you to cut back on college savings, of course!) And no doubt your MLM work IS a public service.

  6. Just wanted to add that DAFs are a decent place to dump stock where you don’t know the basis anymore. I have some employee-stock-purchase-plan stock from years ago, and don’t know my cost basis. You can put it into the DAF (where it gets sold), and you get the full value of the stock as a donation, without having to deal with basis calculation.

    I haven’t done this yet, because I don’t meet the minimum, but it is my plan

    • What a GREAT tip. Thanks, Max! And one of the reasons we chose Fidelity was because there was no minimum for additional contributions, so once the account is open, we could do this stock dump maneuver, regardless of the amount.

  7. Great article! I’ve been a non-profit fundraiser for most of my career, so supporting non-profits, and using tax-smart strategies to do it, has been part of my plan for as long as I’ve had a plan. One more side advantage of DAF’s for those who may not know–it can be a good way to keep your identity private if you choose. Non-profits spend a lot of money on good donors to retain them and keep them giving, so keeping your identity private can in some cases be more efficient for the non-profit (especially if you don’t need their acknowledgement to keep giving!). But if you have personal relationships at the non-profit of course you want them to know you are supporting them, so YMMV.

    Our biggest hurdles to starting our DAF are two things–the AMT, which means right now we don’t really get a charitable deduction, and our kids. We want to make absolutely sure they are taken care of first, so we’ve got higher goals than most in the FI community. Once we really feel like they are taken care of, it will be a decisions to go OMY to pad charitable accounts versus getting a little more time with them while they are still at home. I expect our giving will ramp up once the kids are out of college, as we will probably have way over-saved!

    • I hope folks read your comment and see that those very close to the work of nonprofits wholeheartedly support them and donate their own money. There’s a harmful (and false) narrative out there that “all nonprofits” are wasting money or defrauding donors, and that’s just ridiculous. You are a smart, scrutinizing person with first-hand knowledge, and you give a lot. Read up, folks!

      Re: the private giving, does donating through the DAF stop the endless flow of fundraising mail?! If I’d known that, I’d have set one up YEARS ago! That is my biggest beef with nonprofits, fwiw. Stop spending our money and killing trees to get more money. ;-)

      I think it’s both smart and kind that you are taking the approach you’re taking, balancing the needs of your kids with your charitable aspirations. And we’re totally with you — after we get past the worst risk zone for sequence of returns risk, we’ll (we hope!) be able to ramp up our giving big time!

      • Yes, going through a DAF is one part of a strategy to reduce the mail! You also need to contact the organizations you’ve given to directly at this point, since they already have your name. Ask those organizations to do two things–do not mail (or limit your mail to 1 time per year). Then, also ask them not to sell your name to other lists. Organizations may or may not comply with the second request.

        For organizations you do not give to using the DAF, give online only. The more you communicate that the mail piece is not effective in obtaining dollars from you, the more likely they will reduce your mail. But of course, don’t stop giving because they aren’t sending you mail–or because they do accidentally send you mail occasionally. Lots of systems exist to meet donor expectations, but non-profits aren’t perfect.

        • Thank you for this tip! I am asking nonprofits not to mail us constantly (or at least it feels that way), and it never seems to help, but I won’t give up!

  8. What a great article. I had heard the term DAF and knew it had something to do with charity but had not really looked into it before. This sounds like a great way to give and control your tax deductions at the same time. My tax concern right now is hitting the ACA numbers for subsidies while still taking enough money out of investments to live comfortably. If I am reading your article correctly, you could track your income over the year and if it started to get too high for subsidies , you could dump money into a DAF and use the write off to stay under the ACA subsidy limits. I suppose your could do the same thing by giving directly to charities but I like the feature of being able to control the out flow timing while at the same time taking the tax deduction when it will be the most effective.

    • Thank you! Re: taxes and ACA subsidies… not quite. Most folks who qualify for ACA subsidies do better taking a standard deduction than itemizing, and you only get a charitable deduction if you itemize, so likely no tax benefit there once you’re already early retired. And re: ACA, it’s based off of adjusted gross income, *not* taxable income, so charitable write-offs don’t get subtracted for ACA purposes, only for tax purposes (and then only if you itemize). ACA is based on your total gross income minus IRA contributions. So if you’re under 60 and have a little too much income, you’re better off dumping the overage into an IRA if you can. (But still find other ways to give charitably!) ;-)

  9. It’s good to see generosity featured by you guys and others. ESI Money just had a great post on the topic, too.

    We’ve got a DAF with both Vanguard Charitable and Fidelity Charitable (and initially started with T. Rowe Price). I think you were smart to start with Fidelity. If I were to start one today, knowing what I know now, that would be the one I would choose.

    One small caveat with the $5,000 minimum with Fidelity — you’ll be paying higher fees on a percentage basis until your DAF is funded up to $16,667, since the annual maintenance fee is $100 or 0.6%, whichever is higher. I believe TJ Pridonoff started with roughly that amount when he opened one last year in order to have an optimized low-cost DAF.

    I’ve had a great experience with our DAFs. Not only is it the most tax-advantaged way to give (read that as your chosen charities get the largest benefit for each dollar you choose to give them), but it also makes it really easy to give to multiple charities at once, to donate appreciated shares, and to make repeat or recurring grants to your favorite charities.

    In the past, I was writing checks, finding addresses, licking envelopes, and keeping careful records for our itemized deductions. Now, I can accomplish in a few minutes with some mouse clicks what used to take hours.

    We’re very close to our goal of having 10% of our desired retirement nest egg donated to the DAFs. I’ll be completing that goal later this month, and will be writing a post on it. I’ve practically written a complete blog post here, so I’ll stop now.

    Thank you for spreading the word!
    -PoF

    • It’s this 0.6% fee that has kept me from doing the DAF. I would love if someone could chime in with a lower cost solution.

      • Calculate the tax drag on holding funds in a taxable account instead. It may be remarkably similar. For me, it was nearly identical. I try to be very tax efficient, but I have about a 2% dividend yield from my index funds. That dividend is subject to 15% capital gains, 3.8% NIIT / ACA surtax, and 9.85% state income tax. So nearly 30% of 2% = ~ 0.6%

      • By keeping dollars invested in a taxable account instead, I see a tax drag of almost 0.6% anyway. So it’s pretty much a wash. You should calculate your own tax drag to make a fair comparison, but mine is a dividend yield of ~ 2% subject to 15% capital gains + 3.8% NIIT / ACA surtax + 9.85% state income tax. It comes out to about 0.57%, but varies with the exact dividend.

        • POF, brilliant point. Not sure why I hand’t thought of this myself. I am well aware of the tax drag in my brokerage account and it’s really similar to what you outline. Not sure why I hadn’t quite made the connection before.

      • There isn’t one that we could find. Definitely a question of trade-offs: either pay the fee in exchange for the bigger tax write-off all at once while at a high marginal rate, or don’t pay it and don’t get the tax benefit. You have to weigh your own factors!

    • Thanks for affirming that Fidelity was a good choice! And we’ll for sure be above that number threshold before year end, so all good there. (And thanks for writing that out — helpful for other folks to see!)

      Your past giving behavior with the checks and stamps made me laugh… have you heard of the internet? ;-) Hahahah. But definitely appreciate that you’ve always given, and that the DAF streamlines that a lot. I personally look forward to not getting the fraud alert each December 31 when I charge a bunch of charitable contributions in my last-minute donation flurry. ;-)

      Also, major high five for getting to such a high percentage of your nest egg in your DAF! You are my charitable hero.

  10. Awesome stuff! One thing I would note about the contribution timelines though is that in order to get funds in this tax year, there are deadlines that vary based on where the funds are coming from: https://www.fidelitycharitable.org/faqs.shtml#contributions If you have the funds at Fidelity, or can do an ACH transfer you should be fine, but if you’re trying to donate shares of appreciated mutual funds at Vanguard, you need to initiate that by 12/2.

    • Thank you for chiming in with that important caveat! We’ll be doing ACH all the way, but glad you shared that with others reading!

      • It definitely caught us offguard last year and Schwab wanted all the paperwork by 11/27, which was even earlier. Curious why you would ACH instead of donating low basis index funds or funds that don’t fit your current preference and then investing the same amount in cash to have higher basis or preferred funds?

        • Answer: laziness. ;-) (Not really laziness, just too many things to think about in too little time, and figuring out cash vs. shares does not make it to the top of the priority list!)

  11. Interestingly enough, the more careful I am with my money and more detailed I track my spending, the more I have been giving. I think the more I look at our incomes and realize how blessed/lucky/fortunate we are for our situation, the more I need to use some of that to help prop up others. So far I’ve just been giving here and there based on projects that move me, but I really love this thought out approach. Perhaps a goal for me for next year :)

    Ps – just listened to the first episode of The Fairer Cents, and I can’t wait for time to listen to the second one! It is so refreshing to hear ladies talk finance.

    • Thanks for the note on The Fairer Cents! Soooo happy to hear that you’re enjoying it! :-D

      And I love that you’ve boosted your giving as you’ve tracked things more closely. I do think that tracking makes many of us realize just how MUCH more we have than we truly need, and how untrue that is for most people — so I love that you’re channeling that energy into more generosity. ;-)

  12. I know I could look this up, but others might have the same question so I’ll ask it here:

    What are the parameters for making donations from a DAF? ie can you only give to organizations with a 501(c)3 status? Can I use my DAF to “donate” to my cousin’s GoFundMe? etc.

    • Only 501(c)(3) charities. Also, the grant is not supposed to cover the cost of attending a charitable gala or similar event. GoFundMe and others like it are generally not eligible for either a DAF or tax deduction by itemizing when giving directly. When money goes directly to a person (via GoFundME or by check) that’s considered a gift.

      • Typically if you donate (outside of a DAF) and get some kind of gift, the receipt will say what amount is tax-deductible. So for a $200 gala, like $50 might be deductible. And that amount would be fair game from the DAF, but not the rest. Like when we give to PBS, the receipt subtracts the value of the tote bag from what we gave. ;-)

      • If you want to attend a charitable gala using your DAF money, try talking to the charities development director about complimentary tickets. If you donate a large enough amount they will often comp the tickets to their gala. The idea is that a large donor will often donate even more once they are at the gala. (I wonder if the comped tickets have to be declared as income?). My wife works for a non profit and they do this all the time. It builds good will and the donors feel like they are part of the “in” crowd. This also helps build up long term relationships with the donor. The charity would rather have a person donate a thousand up front and get 2 comped $100 tickets than take the risk of the person buying two tickets and not donating anything more at the event.

        • That’s interesting. I don’t think that’s 100% legal from an IRS perspective since you are receiving something of value that is paid for with the money you donated. But I’m also sure it happens all the time!

    • 501(c)(3)s only. Same rules as what you can write off at the 100% level on your federal income tax return, assuming you itemize.

  13. I love this so much! I’m struggling now with the question of wanting to donate to various causes I support (and oh are there many of them) versus putting myself on a more secure financial footing to speed along FI. Sending $50 to one cause here and another one feels laughably ineffective, so usually the selfish goals win out. Opening a DAF fund in the future when I can afford it is most definitely a goal of mine.

    I also really want to start volunteering more when I have more available time. I’ve got a lifetime Girl Scout membership so helping with a troop is the top thing that comes to mind when I think of ways I’d like to use my time to make a difference in the world.

    • No way. $50 is still great! Recent presidential campaigns have shown the power of the small donation. Don’t write off whatever you’re able to give. (Though maybe for the sake of your own sanity, so you don’t get flooded with fundraising mail, maybe focus on one org at a time.) ;-) And I love that you’re planning to volunteer with the Girl Scouts as well! Hooray for empowering future women.

  14. I give what I can to small local organizations as often as I can, it directly impacts my community. From there my hope is it creates ripples that extend further. After that as I prefer to give of myself and my time rather than my money which actual produces a higher rate of return from my perspective. I do this via volunteering for many non-profit boards and doing some sweat equity too. You are setting the bar high, extremely commendable and kudos to your dedication to this aspect of your life.

  15. Thanks so much for this post. I had considered funding a DAF previously but had forgotten about it. This post was just what I needed and I opened and funded a DAF just this morning at Schwab using low basis stock. Thanks again for providing the motivation!

  16. Thank you for this post! I never thought of DAFs as something that could apply to me, but looking at those Fidelity minimums, this is doable! I appreciate the info you shared here in such a straightforward way and I really commend your thoughtfulness and generosity! You are right, we are so privileged to even be able to consider FI/RE. I shouldn’t lose sight of that while trying to reach lofty financial goals.

    • Awesome! I’m so excited you now see DAFs as something you could use! :-D And snaps for recognizing your privilege and the responsibility that comes along with that! :-)

  17. This is the most important thing you can ever do with your money.

    Right now, we try to give about 5% of our income to charity, even though that means later retirement. We don’t even usually get to deduct it from our taxes, because our mortgage rate and state taxes are so low and we don’t meet the standard deduction for a married couple.

    Anyway, we want to retire early, so at that time we will shift our charity from donating cash to donating time and talent.

    So where to give? People matter the most, so we give heavily to disaster recovery and to general poverty relief. Catholic Relief Services is a worldwide leader in the latter, so they get a large portion of our donations.

    Always be sure to check Charity Navigator for ratings before you give. There are some major national/international charities that give relatively little of your money to the people whom you want to help the most, so beware.

    • Amen! And I bet you can find some ways to continue giving cash in retirement, not just time — don’t write off the possibility entirely. ;-) And I’m with you on checking Charity Navigator as well as Guidestar, but the overwhelming majority of charities really ARE using the money responsibly, so I don’t want to add to the narrative that most are untrustworthy and we need to find the rare few that are effective. MOST are effective, but it’s good to check that you’re not giving to one of the few irresponsible ones.

  18. Yesssss! We ended up going with Fidelity as well ^_^

    Money really makes the world go round. I’m not a fan of voluntourism or donating supplies, because they’re just not as effective. Take a flight to your impoverished area of preference, as an example, for a trip to build a new school — way better utilized by local workers! And that food bank you’re sending cabs of bread you got on sale at fifty cents a can specifically for the food drive? They can likely get a way better deal, AND they know their needs.

    Volunteering definitely has its place, of course, especially if you have skills charities need — but $$$ is always useful. We’re also of the “let’s be more conservative than probably necessary, and worst/best case we leave a huge legacy” 😀

    • Woot! And YES on the voluntourism and donations of things other than cash. Especially after I found out that most stuff donated to Goodwill just goes to the landfill anyway (and at THEIR expense!), I shifted my thinking even farther into the “give cash” zone. I also used to volunteer at the LA Regional Food Bank, and when I saw that most people give beat up, expired food that the food bank ends up having to toss, I stopped asking people to give food and went all in on cash donations.

      • I didn’t know this! I am now no longer a fan of food drives and will start encouraging my Young Professionals Network to aim for cash instead. We’ve done canned food drives before, but don’t get a ton of donations anyway.

        • I am definitely not saying we should never donate food or items, but should just be aware that those donations alone aren’t remotely enough. Cash is almost always better than physical items!

  19. Thank you for such a detailed DAF overview! I have heard of these before but only superficially. Definitely worth considering as we plan our FIRE. We will be volunteering more once retired, for sure. I am also thinking about serving on the city council of the tiny town where we plan to retire.

  20. Great post. I’ve heard about DAF, but never looked into the details. We aren’t there yet. It is great to hear the FIRE community talk about giving and generosity.

    But I’m pretty sure charitable donations are still allowed under the AMT – are DAF treated differently or am i mistaken? Google tells me mortgage interest and charity are AMT-safe deductions.

    • Charitable deductions are allowed under the AMT, but you get diminishing returns after a certain point that varies according to your situation. So you might not get the full write-off for a big donation, but that’s a question for your tax professional. ;-)

  21. Really great post. It’s something I’ve thought about too – given that most people save for the worst case, most likely they’ll have way more money than they were planning for. This discretionary money is prime for charitable giving, because emotionally we will feel that it is free. So even if a person is saving as hard as they can until they achieve FI and therefore don’t want to divert funds to charitable giving (via a DAF or otherwise), they can still give significantly after retirement by giving a decent portion of their ‘extra’ money in cases where their investments outperform there worst case calculations. Add to this that a lot of people who retire early will continue to do some form of work (or income generating discretionary activity for the purists!!), which probably won’t be in their calculations.
    Have you put much time in to how you would go about donating the money? When I first started giving seriously I got concerned about how effectively the donations were being used, and how I could go about getting the best value for money. That led me to the GiveWell website, which I would recommend checking out. I don’t want it to seem like I’m peddling something here (I have no affiliation with them), but from reading your blog I think you would enjoy their numerical approach to the concept of charitable giving. It’s definitely off the beaten track in terms of how most people think about it, but then the whole FIRE thing is off the beaten track to some extent.

    p.s. I don’t comment as often as I should to tell you how glad I am that this blog exists and how much I enjoy your writing, so thank you!

    • Thanks for this wonderful comment, Jamie! So glad you enjoyed this post — and the blog generally! ;-) Appreciate you reading, even when you’re not commenting!

      Short answer is YES, we like GiveWell, as well as Charity Navigator and Guidestar, to provide helpful data about effectiveness of organizations. However, having worked with a fairly large number of nonprofits and philanthropies over time, I do know that a lot of that work is hard to quantify with easily digestible metrics, so we don’t look ONLY at those numbers. We also look at places where we see need (for example, who is actually suing polluters so that they are accountable to our laws rather than just pushing for tougher laws? That would be Earthjustice.), and who is filling that need. Because we’ve worked in the social cause space for so long, we know that we need many orgs working at different levels and from different angles to get at real solutions, so that’s a big piece I’d encourage folks to look at!

  22. Tanja, my husband and I have been talking about setting up a DAF and your post came at the PERFECT time! Thank you for writing such a great guide. We’re meeting with our CPA next week to go over if it’s the best thing for our situation. We had looked into Vanguard but our initial deposit wasn’t going to meet their steep (for us!) threshold. Fidelity seems like a much better choice. We need to research to see if our recipients can be our church, World Vision, Compassion Int’l and a few others (all 501c’s, so I think the answer is ‘yes’….and is the “donating” part as easy as logging on and clicking “send”?

    Downloaded your podcast and will listen on my walk today…thanks for producing such awesome content! Can’t wait to listen!

    • Yay! I’m glad this was helpful! (And thanks for your nice note about the content — glad you enjoy it!) :-D It’s worth clicking around on the sites, but the answer *should* be that you can give to any org registered as a 501(c)(3) (but not (c)(4)s or other (c)s). Kudos to you guys for considering taking this step!

  23. “Scarcity is the enemy of generosity.” I love it. That’s something I struggle with as well. Right now in my accumulation phase I have a high cash flow and like giving (for selfish reasons like you explained so well.) But I think it will be mentally a lot harder after FI.

    My plan is to save more and build a giving budget into my number to that I can continue to give after FI. But on the other hand I think it would make more sense to give more now, because (a) giving now helps people now, and (b) there is the company match. Haven’t figured it out yet ….

    Great article, and I love that you think this stuff through. This is so important and we can do so much good with our superpowers.

    Btw. +1 for GiveWell (the organization that Jamie mentioned above)

    • I appreciate that you’re honest with yourself about this struggle! And I do think there’s a case to be made for at least giving enough now to get your company match, much like a 401(k), and — as you said — because there is so much need now. As for your future giving fund, I don’t know if you’re like me, but if I made that giving optional, the scarcity mentality might encourage me to keep that money for us rather than giving it. So the DAF is helpful for that, too — making the giving mandatory because there’s no getting that money back! ;-)

  24. Absolutely love this message! It’s one the PF world needs to spread–that’s great you were able to communicate it at FinCon as well. And thank you for saying volunteering is not interchangeable with monetary donations. So important, and I think those who have worked with nonprofits know this best.

    We will most likely set up a DAF before retiring. I’ve also felt conflicted about the prospect of ER diminishing our giving, and the DAF is a great way to keep it going. We’ve yet to crunch the numbers to figure out just how much we’d need in our fund to maintain a desired level of giving. Thanks for sharing the details of the Fidelity and Vanguard funds, too.

    Do you plan to withdraw from your DAF at 4% annually, if you don’t mind me asking?

    • Thanks, Kalie! I always appreciate how much you guys encourage giving, too. :-) Good luck in figuring out how much you need in your giving fund. In terms of ours, we’re still TBD in how much we’ll give, but it will for sure be more than 4% a year. We don’t need our initial contribution to last forever, and hope to be able to re-up the fund as often as possible, adding to it when the markets outperform our projections and when we earn side income. I’d rather spend the initial contribution down in a few years but then keep adding than to try to stretch it over the long term.

  25. Right on! I was just doing some end of the year planning for me and you just did the DAF research for me in one nice little article. It seems like Vanguard is only trying to sell their DAF fund to super high rollers, which is unfortunate since I really do like my stuff all in one place, lol. But I think I can overcome my laziness and open up another account, but only because it’s for a good cause!

    • If it makes you feel any better about not using Vanguard, it’s not the same place anyway. You have to log into Vanguard Charitable, and you can’t get all your accounts on one nice little dashboard. So might as well go elsewhere! ;-)

  26. Hello Tanja!

    I love when you write about purpose and the impact one can have through FIRE!
    As I wrote in a previous comment a few months ago, I feel that this topic is not discussed enough in the FIRE community.

    In addition to being an awesome lifehack, I believe FIRE can be a worldhack! Being able to choose what one does with his/her time irrespective of the compensation has such a great potential to change the world! I am not FI yet (working on it), but I have so many ideas of what I could do if I was not tied up to my job: working for a development aid agency, working with refugees, helping with climate change or poverty eradication. There are so many ways to contribute, and they’re all really exciting and impactful.

    My problem at the moment is that I am not sure how I am going to decide which of these to go with once I reach FI.

    I recently discovered “Effective Altruism” through Scott Rieckens, the director of the documentary “Playing With Fire”: https://www.playingwithfire.co/the-documentary/ . For those who are not familiar with it, effective altruism is a philosophy and social movement that aims to apply evidence and reason to determine the most effective ways to benefit others, making charitable giving a lot more effective and impactful. It’s really powerful. I highly encourage everyone here to have a look at http://www.effectivealtruism.org and http://www.givewell.org.

    While it has not fully answered my question (it actually raised new ones), it’s helped me start defining a framework to think about how to have the most positive impact with what I have to give.

    One of the big dilema of wanting to do the most good is that one of the surest way to achieve that is probably to continue earning (especially if you are earning a top quartile salary) and donate effectively. But it does not really account for my other personal aspirations (basically all the other drivers of FI). I am now considering something in between, engage in a new activity that has a positive impact and donate all the profit through effective altruism. That would basically mean doing good twice :-)

    In any case, I think we don’t speak enough about the potential positive impact that FIREd people can have on the world. We have this superpower and I feel like too many of us do not realize its potential. I think it would be worth starting a group, a blog or a facebook group for people looking do have a positive impact after FI or while they are working on it. It could literally change the world.

    I know Scott Rieckens would support this idea and so will J.D. Roth. I also have a friend here who is FI and would totally support this (she is currently travelling through Africa to find potential projects for Engineers Without Borders).
    I could start something on my own, with just those few ideas, but I believe it’s way bigger than just me (plus I am already pretty overwhelmed with my day job (for now) and the personal finance non profit community I run here (https://bogleheadsuae.wixsite.com/website)).
    I would like to get your thoughts on this, and see if other members of the community would be interested in something like this.
    What do you think?

    Sebastien

    • It’s interesting you mention Playing with FIRE — we were supposed to talk about effective altruism during the roundtable discussion I was a part of for it, and it ultimately wasn’t discussed. Womp womp. I for sure would have loved to talk more about that, because you know I’m big on pushing the community to be more selfless (even if the reasoning comes from a selfish place).

      I wonder how many others beyond the few you mentioned would want to actively engage in a community like that, but if there was interest, I’d be happy to support it. If the ultimate Playing with FIRE movie leans into effective altruism, it could boost interest in the subject, which would be a wonderful thing!

      • I like the idea! But there is so much he needs to cover I am not sure if he will be able to include effective altruism in the movie… it would definitely be great if he could show some examples of the “real” superpower of FIRE. I am going to write to him :-)

        This is definitely something I would like to explore further. I will drop a line to J.D. Roth as well and see what he says.

        I just started listening to the Fairer Cents and I like it a lot!
        I noticed you’ve included advertisements. I know it’s not only your decision, but do you think you would have managed to produce even more content (like you do on this blog) for free if it was your decision alone?

        • I love it. Any more attention we can all pay to effective altruism (or ANY do-gooding) is a good thing. :-)

          And thanks for listening to the podcast! It was essential to me that the podcast be free for listeners, and it is. The ads cover our costs, which are much higher for podcasts for blogs, and that is important for me — I’m happy to write here for free (and to absorb some costs), but I can’t go into the hole on everything. ;-) Plus, podcast production is incredibly time consuming, so I’m pretty much going at maximum capacity right now. Ads are definitely not holding me back — time is! ;-)

  27. What an awesome post! I love our Fidelity Charitable fund as well, which I chose over our local community foundation which I’m involved with. A few other random thoughts:

    Board Service is a great way to give talents, provided you can keep it from “feeling” too much like work. Its also a great way to expand someone’s scope of thought. Personally, I grew up with knucklehead parents who blamed everyone else for their problems and didn’t work hard, even though they had awesome grandparents and all the world’s privileges growing up. I just thought for the longest time people who were poor were poor because of their own choices because that was my experience (and had that insensitive libertarian streak in me in my 20s). Initially doing business with, then serving on the board of a human services not for profit has been enlightening for me. It also helps their development/fundraising staff desperately needed the advice from someone who’s a sales manager by trade.

    If someone is reading this and they’re uncertain about “retiring” quite yet, or your company is trying to retain you, you can always ask the company make a contribution into your donor advised fund or with a local community foundation. At our company compensation takes multiple levels of approval, but charitable donations do not. Our local community foundation rolled out a “executive giving” program, which basically means the company funds a portion of your DAF. I’m about to have this conversation at work since my main motivation at work right now is additional cushion on our retirement but also funding some charitable causes. I figure if some of my peers can have their initiation fees paid to a fancy in-town golf club, the company can pay something similar to a donor advised fund. I also find the people at the foundation’s events far more enjoyable than the golf clubs.

    I can’t wait to see how you make it rain for causes you enjoy!

    • Thank you! And agree re: board service. We both already do that and will do more in the future. The caution I will add is that 1.) It often can be a LOT like work (see Mark’s current commitment), and 2.) There’s often a ton of out-of-pocket costs that go with it, particularly around travel. That’s something that’s holding us back from committing to more right now.

      I completely love your suggestion to have employers donate to your DAF!

  28. Thank you so much for talking about this important topic, Tanja.

    Many of us in the FI community (ok, probably all of us) have no intention of sitting on our front porch and sipping coffee every day for 30 or 40 years. We all have ideas, plans, dreams and goals, and I agree that some of those should be how we, the blessed few, can make an impact in the world around us.

    My wife and I have had the privilege of working with the urban poor in countries like Panama and Haiti and realize that we are often blind to the luxury that surrounds us here in the US.

    We have been talking about our future charitible plans for years when we discovered Jim Collin’s post on Vanguards Charitable Giving fund How to Give Like a Billionaire. http://jlcollinsnh.com/2012/02/08/how-to-give-like-a-billionaire/.

    We don’t have a solid plan yet, but we love hearing more and more in the FI community recognize their blessings and plan to pay them forward. Thank you for sharing your story and the info on why you chose Fidelity’s offering.

    Go make it rain!

    • I laughed about your sipping coffee note only because I bet Mr. and Mrs. Slowly Sipping Coffee would disagree! Haha. And just kidding — they do tons of other stuff, too. ;-)

      I love that you guys are thinking about incorporating a charitable mission — and that you’ve already been involved in service projects! Let’s ALL make it rain! ;-)

  29. This post was really helpful and informative. I am looking at opening a DAF next year, and will definitely stick with Fidelity. Thank you for sharing your insights!

    • Glad it was helpful! And when you’re ready, it’s worth looking again at the different brokerages because their rules do change sometimes.

  30. How did you decide what investment option to choose when you opened your DAF at Fidelity? I’m inspired by your post to open one, too, but I’m not sure whether to stick with a money market fund or go with a riskier stock fund. Thank you!

    • Because we’ve only done the initial investment so far, we just did it in money market and bonds, and will plan to pay it out next year. But I’ll likely spend more time with it when we do our bigger chunk at the end of the year! I’m super stoked to know you opened yours, too! That’s the best. :-D High five for your generosity!

  31. I didn’t realize how relatively low the minimums could be for a DAF! Since I intend to keep my business that is a big part of how I help the world, I have not yet thought seriously about how to give more later. I know where I want any legacy I have to go, but with such a big negative net worth, it does not seem to be the time to think deeply about that.

  32. Yes yes yes. I am saving up a set amount each paycheck to be able to start a DAF. I’ve been eyeing Fidelity mainly because I could get it started sooner than I could with Vanguard, but I am definitely going to go with Fidelity based on the minimum grant and minimum additional contribution numbers that you laid out here!

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