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Question: We’re 71, retired, and have an $8,000 monthly income. My wife believes tithing (or donating 10% to our church) is her religious duty. I think she shouldn’t feel so pressured to give. We’re comfortable but not wealthy. What’s a tax-efficient and relationship-saving solution to this issue?
Answer: Religion is a very personal matter. And it’s not uncommon for people who share the same faith to practice it very differently. But no matter which religion you identify with, the obligation to tithe in some shape or form may be a core part of your beliefs.
In 2023, Lifeway Research found that 77% of American Protestant churchgoers believe tithing is a biblical command that still applies today. Only 10% say it’s not.
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It’s not just Christianity that promotes tithing; many religions, such as Judaism and Islam, also have a practice of donating a portion of one’s income.
If you believe in tithing, you may want to uphold that practice even once you retire and move onto a fixed income. And if you have a retirement income of $8,000 a month, you may be comfortable enough that you can swing it. Still, it’s important to make sure you don’t upend your finances in the process and cause yourself undue stress.
Make sure you’re giving in the most tax-efficient manner possible
Chad Gammon, CFP and owner of Custom Fit Financial, says that if you’re going to tithe and have a traditional IRA, it pays to donate directly from that account. As long as you’re at least 70½, Gammon says, you can make your annual donations via qualified charitable distributions (QCDs).
“The IRA custodian who holds the account would send the money directly to the religious organization,” Gammon explains. “The distribution would be excluded from your income and the religious organization would not pay tax either.”
As long as the organization you’re donating to is a qualified charity, QCDs are the most efficient way to tithe, Gammon insists. He also recommends looking into setting up a donor-advised fund (DAF), as that may be a tax-efficient way to give, too, depending on the assets you wish to donate.
“Your religious organization probably has some knowledge of QCDs and DAFs,” Gammon says. “They can be very helpful knowing your intent.”
“An alternative approach to tithing in retirement is to give a percentage of your net worth rather than a percentage of your income.” — Cody Garrett
You may want to calculate your tithe a different way
Traditionally, tithing has meant donating 10% of one’s income to charity. But Cody Garrett, CFP, owner and financial planner at Measure Twice Financial, says you may want to use a different formula as a retiree.
“An alternative approach to tithing in retirement is to give a percentage of your net worth rather than a percentage of your income,” he explains. “For example, a worker earning $100,000 might give 10% of their gross income, and a retiree may give 1% of their $1,000,000 net worth annually.”
In this example, both formulas result in the same amount of $10,000. However, the annual income you draw in retirement may fluctuate from year to year, depending on your needs, the performance of your investments and other factors. So you may feel more comfortable calculating your annual donations as a percentage of your net worth.
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Remember that flexibility is important
Retirement can be a financially precarious period of life. And your income may not be nearly as predictable as it was when you were working.
You may have $8,000 a month coming your way now. But if half of that is Social Security and the other half comes from your savings, it means you could have some years when your income is nowhere near $8,000 a month.
Say the market takes a dive and your portfolio loses value. If it’s a bad time to tap your savings, you may suddenly be limited to $6,500 a month instead of $8,000.
Now it may be that you were able to afford an $800 monthly donation when you had $8,000 coming your way, as that left you with $7,200 for remaining expenses. If you’re now limited to $6,500 due to a market downturn, you may not have the room in your budget to part with 10% of your income.
That’s why Garrett says you may want to take a more flexible approach to tithing.
“Some tithers follow strict Old Testament interpretations and believe the tithe should be calculated on gross income, before taxes or deductions,” he says. “Others frame it as giving voluntarily from the heart.”
As Garrett points out, 2 Corinthians 9:7 says, “Each of you should give what you have decided in your heart to give, not reluctantly or under compulsion, for God loves a cheerful giver.”
In other words, tithing is a wonderful thing to do, but it shouldn’t cause you undue stress. If there’s a period during retirement when you can’t afford to give 10% of your income, give whatever amount is meaningful without compromising your ability to cover your basic needs. You can always increase your donations during years of higher income if you feel compelled to compensate.
