A Framework for Giving When You No Longer Have Income
How retirees and business owners can create a sustainable giving strategy after the paycheck stops
By Drake Richey
This time of year, our inboxes are often flooded with emails about great needs in our communities and around the world. When you’re in your prime working years and have a steady source of income, it may be easier to contemplate and execute charitable giving. But what about when you retire? By first establishing a few principles of generosity, we can then examine how retirees, business owners who have sold their companies, and those with inherited wealth can create a framework for charitable giving that works, even when you no longer have a working income.
Three First Principles of Giving
Before we talk about frameworks, it helps to name what we actually believe about money:
You can’t take your money with you. Money, by its nature, will not follow you. It will move: into the hands of your heirs, your community, or your government. The only question is whether it will move in ways that express your purpose.
Someone will spend your money: you, your heirs, or the government. This isn’t pessimistic; it’s just true. At a certain point, stewardship means deciding who gets to direct those resources and toward what ends.
Generosity is good for the giver, even when it’s hard. In a previous article, we explored the link between generosity and lower financial anxiety. Giving isn’t only morally admirable—it’s also psychologically liberating. But that freedom requires a framework, or we’ll default to fear.
The Loud Temptation Not to Give
The temptation not to give never disappears. For many retirees and those who have sold a business, it actually grows stronger. The instinct to protect what you’ve built—to preserve, to make sure “it lasts”—feels responsible and prudent.
In religious communities across the world, a practice of tithing or giving 10% is a common framework for giving during our working years, even when it’s a stretch. But what happens when income stops? Without a guiding framework for all seasons of life, even people of great means can slide into a posture of scarcity to protect resources they’ll never actually need.
A Giving Framework for Retirement and Post-Business Sale
In his book What Your Money Means (And How To Use It Well), Frank Hanna developed a framework for giving away money in retirement or when income is no longer a significant contributor to net worth.
Every year, contribute to the common good whichever is greater:
- 10% of the increase in your net worth—giving linked to appreciation
- 10% of what you consumed on living expenses that year—giving linked to consumption and lifestyle
- An amount equal to your net worth divided by the number of years you can reasonably expect to live—giving linked to longevity
It’s a strikingly balanced framework. It accounts for growth, lifestyle, and longevity; the three realities that define financial life in retirement. Most of all, it recognizes that generosity should remain dynamic even when income stops.
Recognizing When Wealth Is No Longer Essential
This framework is principally for those who, by most measures, have accumulated resources beyond what they are likely to spend during their lifetime. That said, many people with great resources still don’t know the answers to basic financial questions:
- How much money do I spend each year?
- How much money do I want to leave my heirs; and at what point does more money make things worse for them rather than better?
If you want to be generous throughout retirement, you need clarity around your financial picture and goals. The framework doesn’t work without honest answers to these questions, but once you have clarity about your financial plan, what is the framework that you will choose for giving?
Choosing Generosity Over Default
Generosity is something easily postponed and it can be justified as being pragmatic. But many people fail to realize that inaction IS a decision. It defaults the stewardship of your resources to others, often to the IRS or heirs who may not share your values.
Rather than living in fear of running out, can you implement a charitable giving framework that can help you make deliberate and joy-filled decisions? Whether you’re retired or recently sold your business, develop a framework both of how much you will give away and to whom you will direct that generosity!
The framework of giving away 10% of the increase, 10% of your consumption, or one based on your life expectancy will not leave you impoverished (at least I haven’t seen that happen yet!).
Establishing a framework may actually make you rich in ways you didn’t expect.
