Give Now or Give Later?
I’m currently navigating the 'Give Now vs. Give Later' debate. I plan to eventually donate 100% of my wealth to effective charities (no kids, so that makes it simpler!), but I’m struggling with the timing.
Some argue that solving a problem today (like global health) has "compounding returns" for society that can actually beat the 7-10% return of the S&P 500. I think I believe that.
However, I value the security of a robust safety net for my own retirement. My current strategy is donate 10% of my income each year (per the Giving What We Can pledge), but I think I need to reconsider this. Rebecca from Yield & Spread brought up a wealth pledge where I donate a percent of my wealth each year. That sounds like the right move, but it is a bit scary? Any advice?
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Thanks for the shoutout espamer. This is obviously such a tough question to answer. Not tough in the sense that you have already made an obligation to give and help others, but that you are trying to maximize the amount you give over your lifetime, while also ensuring you don't run out of money. That IS scary!
Chances are, if you do a series of monte carlo simulations, there's a small chance you end up with $0, but there is a very real chance you have 7 figures when you die. We just don't know what the market will return to you assuming you stay within a reasonable SWR. And also, we don't know how long you'll live! As such, it's pretty hard to optimize giving "it all away"
For me, there is no single plan of attack here. It's all about iteration. I'd say two things:
(1) I love that you are planning to give most of your wealth away upon your death. You can look at this bucket as an "Invest to Give" bucket a la Benjamin Franklin. Perhaps you are feeling a built guilty that you're hoarding money for yourself now, but if you can adopt the viewpoint that there could be better (or even just impactful) opportunities to give down the line and that you'd have more money to give because it's compounding, then it's a opportunistic way to look at it.
(2) Re-evaluate your current giving plan each and every year. Perhaps it's 10% this year, 11% the next, 12% the next -- see how your portfolio is doing. If the wealth pledge is scary, try starting with 0.1%, then 0.2%. (BTW is there a chance that your income pledge is comparable to a 1% wealth pledge already?)
I also like the idea of being very proactive and giving larger amounts when the markets are outperforming your 4% expectations (e.g. guardrails). This is a no brainer to me.
For me personally, valuing the security of a robust safety net would take precedence. Neither answer is wrong. You don’t necessarily need exact numbers or a percent of your wealth, but can give a little more in Up years and less in Down years to the extent you feel comfortable.
For me, it's 'Give later' for the most part. My mom's care right now is costing my dad $410 per day. My long term care "insurance" will likely be what is left of my portfolio.
First off, this is great of you, and a great problem to have. What percent of your overall are you using for your own purposes? and what is your expected horizon? If say 3% for 30 years, you could easily continue to give another 3-7% of your investments (not just your income) and wind down over time / down years.
My main question, is there a specific charity or situation you want to help solve? If not, then I wouldn't just give away all now if not something you're passionate about. So figure that out first, maybe donate your time to a few organizations, attend fundraisers, hear some stories...
Once you have that you could easily take 25x your expenses (4% withdrawal conservatively) and give the rest away now to truly help. Or break this extra portion into chunks over the next 5-10 years.
I understand your point of taking your Safe Withdrawal Rate/SWR (whether that is 3%, 4%, or 5%), depending on your circumstances, risk tolerances, and assumptions, convert it into a lump sum needed (33x, 25x, or 20x of estimated retirement expenses), and you are free to give away any lump sum greater than that.
What I do not understand is your comment about giving away 3%-7% of investments. Did you mean principal, one time, or annually, like the way SWR are used?
If the later, that would appear to be an annual 6%-10% withdrawal rate, which is not sustainable under any SWR regime (generally between 3%-5% max consumption unless non-portfolio reliable income sources are added).
Please clarify what you meant by that comment.
It is the latter, and yes not sustainable longterm but that’s the point to give more early. So in a year like 2025 if portfolio goes up 15% then pull your 3% expenses and could give 7%. Down years would limit giving, so kind of a guardrails approach to giving. Not a fan of this approach but just different idea.
So you mean donating early rather than ongoing. That makes more sense, thanks.
However, it still sounds a bit risky, especially as
espamer said:
because the spending curves that run out of money generally happen because too much spending early depletes the portfolio too much to recover from in a bad sequence of returns scenario. I see you tried to compensate for that by saying donate only in up years, but without actual simulation calculations, like Guyton and Klinger (the main guardrails proponents) did, it is unclear if your guardrails rule would be enough to weather a bad sequence (say a decade of mostly down years after a couple up years with large donations).
Your other option of figuring out how much you need based on a 20x-33x SWR-derived needed nest egg and donate excess beyond that sounds safer from a risk of depletion perspective.
You could always recalculated in 5-10 years (with shorter time horizon and often with market growth) to see if you could donate again with additional excess, still much earlier than as a posthumus bequest.
agree across the board