Today’s guest writer needs no introduction for long-time ESI Money fans (or people who read financial blogs in general, for that matter).
Doug Nordman has already contributed many posts here. His always fascinating Sea Stories have been a regular feature at ESI Money. Here’s the list so far (I’m hopeful we’ll get more in the future!):
He also has an excerpt here from the book he wrote with his daughter (Raising Your Money-Savvy Family For Next Generation Financial Independence — 4.7 stars on Amazon!) titled Manage Your Teen’s Expectations About The Education Fund. I encourage you to get a copy of the book if you have kids or grandkids as there’s some very useful wisdom in those pages.
Doug (as well as his daughter, Carol) is one of the top mentors in the MMM forums. He has a broad range of financial knowledge and is probably more of an expert on the 4% rule than Bill Bengen. Hahaha!
One thing I especially appreciate about Doug is that he’s a giver. ESI Money readers know that I have a soft spot for that subject myself.
Doug has a solid history of giving — both within his family as well as to charitable causes benefitting people all over the world. So when he posted that he’d hit a giving milestone, I asked if he would share his thoughts and experience with ESI Money readers. And that’s what we have here today.
So without further ado, I tun it over to Doug Nordman…
—————————
While you’re pursuing your financial independence: what are your plans for philanthropy, family gifting, and your legacy?
Regular readers of this site know that Americans don’t like talking about money. (Maybe most of the human race behaves this way.) The silence makes it harder for people to learn financial literacy (let alone reach FI sooner) but at least we’re changing our behavior. Maybe in a generation or two we’ll all be comfortable at asking personal-finance questions and sharing our experiences.
Do we like talking about philanthropy? Well, we’re all happy to discuss volunteering in our community or with a non-profit. But talking about giving our wealth to charities — let alone why or where or how much — still seems to be a performative humblebrag flex.
Are we willing to share our hard-earned parental wealth with our children while they’re young adults? Woah. What if they fritter it away on choices that we don’t agree with?!?
Let’s change those taboos.
Philanthropy In The Millionaire Interviews
ESIMoney asks three questions about charity on his Millionaire Interviews:
- Do you give to charity?
- Why or why not?
- If you do, what percentage of time/money do you give?
Yet ESI’s review of his first 400 Millionaire Interviews concluded:
“Charitable Giving: While most millionaires do give to charity, most percentages were very low. Considering their higher incomes, I would have expected/hoped for more substantial philanthropy. Some say they will give when they get older, but consider me doubtful on that claim.”
I share his skepticism. As a long-time reader of the Interviews, I can recall only twice when a millionaire(!) wrote about tithing 10% of their earnings. When I searched ESIMoney’s site for the “philanthropy” keyword, I was chagrined to note that it’s only used 15 times — and four of those times are by me.
Why is this?!? Where does giving fit into FI? Should giving be done (if at all) while a person is working on FI? Or only after FI is reached?
In defense (not much) of the delaying tactic of “We’ll give more later”, Warren Buffett felt the same way for most of his life. He knew that he could compound his wealth faster than any foundation, and he planned to let his first spouse donate his wealth after he passed away.
Then Susan Buffett unexpectedly died of a stroke. Later he began donating his shares of Berkshire Hathaway stock to various foundations. As he predicted, his wealth has still grown faster than the shares he’s given away — and when he passes away he’ll still give billions to charity.
Could we practice gifting & philanthropy before FI and during FI? Why not both?
My spouse and I are learning from Buffett’s experience. It turns out that we can afford to do both.
As you read the rest of this post, keep this question in mind: What are you doing to contribute your time & money?
Philanthropy On The Millionaire Money Mentors Forum
A couple of our forum mentors have enjoyed careers with foundations and non-profits. In retirement, another member started their own foundation. Other forum members are advisors who’ve worked with family offices and wealthy clients.
The spouse of one of our forum members, Fritz Gilbert of The Retirement Manifesto, even took their philanthropy plans a step further by starting their own charity. In 2018 they created Freedom For Fido, a 501(c)3 that builds fences for low-income residents who kept their dogs on outdoor chains.
ESIMoney has brought in philanthropy consultants for Ask Me Anything sessions on the forum, and we invited one to an annual meetup. We still regularly discuss the issues:
- figuring out how to start and how much to give,
- finding a charity that aligns with our values,
- measuring efficiency (with our money) and effectiveness (at supporting the solutions),
- donating in the optimal ways (volunteering, or sending money directly, or donor-advised funds),
- maximizing our impact of our donations (matching campaigns, specific uses), and
- reducing personal decision fatigue by automating a sustainable plan.
Here’s a quote from one of the consultants:
“I love all the clients I work with, but some of the ones that bring me the most joy are those who want to start strategically giving early. They bring me in not because they’re ready to make major philanthropy the centerpiece of their life yet, but because they want to ensure that even their early giving is intentional and aligned with their values. These donors almost always become lifelong givers, building generosity into their process rather than waiting for a milestone.”
They’ve clearly identified the philanthropy weakness with our Millionaire Interviews and our forum discussions — and they’re sharing how we could do better.
I’ve also enjoyed talking with other philanthropy consultants about trends (like the effective altruism movement) and learning what other donors have done.
Frankly, I think we forum members (me included) spend a lot more time (and Internet bandwidth) on discussions about building (and spending) our wealth than we devote to giving it away. Philanthropy — even gifting our families — is a muscle that requires regular exercise for growth.
I’d like to see more interviews describing their “giving while living.”
Our Early Philanthropy Story
My spouse and I reached our financial independence in 1999 on a high savings rate. I retired from U.S. military active duty in 2002 and read even more about legacy, philanthropy, and charities.
Some non-profits focus on improving the most lives per donated dollar (frequently in third-world countries) while other advisors recommend using community charities which can give a hand up to local families in crisis. There are no right or wrong answers — we all have to do our own research to figure out what problems our money should tackle, and who (or what) it will benefit. More importantly, we have to find something that lights us up with sustainable feelings of challenge & fulfillment.
Too much of the philanthropy literature reads like a business class: family meetings, crafting visions & missions, setting generational goals, voting on donations…yuck. I enjoy learning about philanthropy but I don’t want to run a corporation. I can hear a few of my family members rolling their eyes from here, too.
We’ve experimented with volunteering and donating at a variety of local organizations:
- the Hawaii Foodbank,
- a shelter for families rebooting their lives after domestic violence,
- a reading-literacy program for U.S. military families,
- the USS ARIZONA Memorial in Pearl Harbor,
- surfing access for people with disabilities, and
- a nonprofit that helps public school teachers buy classroom supplies.
I also donate my writing & speaking revenue to military-friendly charities like the Fisher House Foundation and Wounded Warrior Project.
We automated our giving, yet we were ready to renegotiate our priorities — and give more — whenever that made sense.
Then three major life changes upended our philanthropy plans. We both saw them coming, but we underestimated their impact.
Starting A New Financial Chapter
First, in 2017, my father passed away away after nearly a decade of Alzheimer’s. I’d already managed his finances for over six years, and distributing his estate was straightforward. My share boosted our net worth by 15%, yet Dad’s long-term care was expensive and we’d never expected to inherit any of his money. As we dealt with our grief, we invested that money in our asset allocation. We deferred any changes to our financial behavior until we’d had more time to reflect on our options.
Next, in 2020 our daughter and son-in-law started their family. We already knew how parenting could change our priorities for the better, but we were surprised by how much their baby daughter affected (in a very good way!) our grandparenting emotions.
Third, in 2022 my spouse began her military Reserve pension. Our inflation-adjusted annuity income spiked higher than our spending. We’d known this pension was coming for over a decade, and we can do math. Yet even my spouse was surprised (and thrilled!) by the emotional affirmation & validation of seeing that first deposit hit her checking account.
These assets and income streams didn’t immediately change our lives, but they certainly made us feel a new responsibility of stewardship. We began thinking about better ways to pass on our family legacy and to do more philanthropy.
Our personal FI lifestyle is dialed in and its cost is barely rising at the rate of inflation. The challenge (as Ramit Sethi writes at I Will Teach You To Be Rich) is to spend extravagantly on the things we love, and cut costs mercilessly on the things we don’t.
Today, we’re doing everything we love while we’re still in our go-go years. In another decade we’ll approach the slow-go years when it’s everything that we can do. When we inevitably hit our no-go years, I want to feel no regrets.
Gifting & Philanthropy Feels Better Than Growing Wealth
My father started gifting small amounts to my brother and me when we were in our 30s, a decade before he developed Alzheimer’s. The money didn’t change our lives, but it made all three of us feel good.
While my father was in his care facility, our daughter graduated from college and started her Navy ROTC service obligation. We parents had spent nearly two decades raising her on financial incentives, just like the Navy did to me with submarine pay and bonus pay. We’d also promised her (for a decade!) that there would be profit-sharing from her college fund if she was a good steward of it. We started those distributions at graduation.
Back then the IRS annual gift exclusion was $14K per grantor per year per recipient. $28K from us parents (of the remainder of her college fund) would cover her emergency fund, a security deposit on her first apartment, her annual contribution to her Roth IRA, and her annual contribution to the Roth Thrift Savings Plan.
It made us parents feel good to celebrate her stewardship with her. However it also enabled a much bigger lesson.
Gifting is a useful opportunity to discuss adult financial literacy, career choices, work/life balance, and quality of life. Gifting is certainly more helpful in an adult’s 20s & 30s than inheriting in their 60s or 70s. The key is raising your kids with the financial literacy (and the skills) to be ready to manage more money (and to keep making good choices).
Here’s why it’s important to gift when you can, rather than saving it for later in life (or after your death).
In the first place, I know that in my 20s I wouldn’t have been able to handle a $28K gift. I wasn’t raised in an environment that promoted saving or investing, and I didn’t have the skills or experience. I was barely financially literate, yet our daughter was raised at the high end of the financial-literacy bell curve.
More pragmatically: our gifts give our young adult the responsibility (and the experience) with compounding her investments so that someday (decades later) she’ll be ready to manage our parental assets for us. We wanted her to keep practicing good stewardship of our gifting so that she wouldn’t feel the same financial caregiving stress that I’d felt with my father.
We finished gifting her college fund several years ago.
Then we shifted tactics and began gifting her from our own assets. My spouse and I continue to gift our inheritance today, while we’re all still here to enjoy the journey together.
We’ve expanded that annual gifting of our parental assets with her…and then with her spouse…and now with our granddaughter. The gifts to that six-year-old are compounding away in her 529 account, her 530(a) account, her Roth IRA, and her UTMA. (Her father’s side of the family has contributed to those for birthdays & holidays, too!) I’m happily anticipating all of our grandparenting financial-literacy teachable moments during the next two decades.
Unlike me in my 20s, our daughter & son-in-law grew into great stewards of their gifted assets. Our granddaughter is going to grow up with the same guidance and (like her parents) will grow into her own stewardship.
During these years, my spouse and I have watched our net worth compound far faster than our annual gifting. This appears to be sustainable for the rest of our lives.
Our gifting is also likely to keep our assets below our state estate-tax threshold.
Along the way, our gifting experience with our family gave us the courage to level up to one of the biggest choices of our lives. Today, I know it’s one of our better choices.
Our discussion began when my father passed away. Coincidentally my spouse and I had recently finished a huge (and long-overdue) rehab of our 40-year-old rental property. By 2017 we’d landlorded for two decades, yet I felt that I’d had enough of it. The rehabbed property was now at peak market value, and we were discussing our real-estate exit strategy. My spouse finds it far more challenging & fulfilling than I do, and she wants to landlord for as long as she can.
Two options were someday moving back into our rental to age in place, or maybe our daughter & son-in-law would want to live in it if they were stationed on Oahu. Cashing out was not an option.
Then in May 2020, as the pandemic spread across the globe, a better family solution popped up in our neighborhood: a house went on sale right up our street from our home.
What a great opportunity! We could cash out our rental property, get a mortgage, and buy the house. It needed some work, but most of it was DIY. We texted our daughter & son-in-law (who were already sleep-deprived parents of a very hungry baby) and they loved the plan.
Then that house was swarmed with eager buyers — despite social distancing & facemasks — let alone its flaws. We’re experienced homeowners who spend a lot of time looking at real estate, and we recognized the bidding war. Adding contingencies to our offer (like selling our rental property or obtaining a mortgage) was out of the question. We even debated waiving a home inspection.
We made a full-price cash offer…and we had to raise it again before the sellers accepted. (The sellers are also grandparents, and they loved our photo of our baby granddaughter.) I called Fidelity Investments to cash out my father’s inheritance plus a large chunk of our taxable account. (I followed that up with the biggest wire transfer of my life.) A month later we signed a stack of closing documents while wearing facemasks and using antibacterial hand gel.
The closing was an inauspicious start to what suddenly seemed like an expensive and alarming risk.
Over three years later(!) the Navy finally sent our family to Oahu. (During those years they spent a lot of their leave in that home, too.) Amid all their chaos of a new duty station, unpacking, childcare, and becoming Hawaii residents, we grandparents asked the parents a new question: who should own the title to their place?
We had plenty of time to discuss the issues. The four of us consulted our estate-planning lawyer, a couple of CFPs, and a tax Enrolled Agent. We even analyzed our options with the Millionaire Money Mentors forum. I was a little annoyed to learn how much more I was worth dead than alive.
The optimal financial solution was for my spouse and me to hold the house in our names until our deaths, giving our heirs the stepped-up basis. Our progeny had to be willing to wait 3-4 decades, and hopefully the house’s value (at our parental deaths) didn’t trigger Hawaii estate taxes.
Yet it wasn’t giving with a warm hand. As another son-in-law, I knew how I’d feel if I was living in my parents-in-law’s house. Even our daughter might feel obligated to check with us every time she changed a lightbulb or trimmed a bush. My spouse and I certainly didn’t need to oversee a third property. We wanted our young adults to have agency, and to feel their stewardship challenges of being rookie homeowners — because someday they’d be caring for our home too.
After months of analysis and discussions my spouse and I signed over the deed, and we filed IRS Form 709 to tag the gift against our estate-tax deduction.
Our two generations have learned a lot about the gifting process. I never in my life thought I would do it at this scale, yet it’s turned out to be one of the most rewarding experiences I’ve ever had.
Today, my spouse and I are still landlords of our rental property. Now it’s nearly 50 years old, and our daughter and son-in-law are stepping up to help. I’m certainly ready to be relieved of this duty, and we’re all having more discussions about the plan. My spouse still enjoys landlording, or we grandparents might still move back into it someday, or some other idea might make sense. Our discussions are far more important to us than the decisions.
That’s our family gifting plan.
A Fresh Look At Our Philanthropy
In the 1990s, before we reached FI, we occasionally gave small amounts to charity. (You military families and civil servants know all about the donation drives of the Combined Federal Campaign.) In 2007, after I’d been retired for five years, we started our Fidelity donor-advised fund.
We organized our philanthropy and began automating it.
Each year as our taxable account rose in value, we’d donate some of our appreciated shares to the DAF and distribute the grants. We didn’t have as many appreciated shares during the Great Recession, but by 2011 we were ramping it back up. We could donate a big lump sum every few years (when it made sense), and continue distributing grants at our usual annual amounts. We could also stay totally anonymous, which eliminated mailbox appeals & fundraising phone calls.
By 2013 (after a decade of retirement) we confirmed that our wealth was growing faster than inflation while our spending was growing with inflation. After a decade of withdrawals using the 4% Safe Withdrawal Rate, our asset growth meant that our current personal spending was only about 3% of our exponentially-rising net worth. (This is how you know your financial independence is no longer vulnerable to sequence of returns risk.) In a blinding flash of the obvious, we realized that we could donate another percentage point of our net worth to charity. Our taxable account was rebuilding its large (unrealized) capital gains, and those gave us large itemized deductions on our income-tax returns.
That year we boosted our philanthropy. A decade later when my spouse started her military Reserve pension, we boosted it even higher.
Now in our 60s, we’re living our best go-go lives within our pensions. We’re delaying our Social Security deposits until age 70. Meanwhile our investments (with a very high asset allocation in a total stock market index fund) are still compounding faster than inflation. In the last few years, ridiculously faster.
We’re receiving more income than we spend on ourselves, and we have more assets than we need.
Today there’s still the (slight) possibility that by the time my spouse and I finish our (very long?) lives, our assets will compound enough to trigger our state estate tax. I’m not zealous about the advice of the book “Die With Zero”, but paying estate taxes seems like a waste of good gifting & philanthropy money.
Instead we’ll keep withdrawing our excess wealth from our investments and donate that 1% of our net worth every year. We could do it for the rest of our lives (plus Social Security starting in 2031) and *still* have money left over.
We could keep growing our net worth like Buffett, but we’d rather do more with our money now — while we’re all still around to discuss our options and to enjoy the results together.
“What About The $2M, Nords?”
It took a while to gather all of the data. I downloaded our contribution history of our DAF. I went back through three decades of tax returns. I spreadsheeted our annual gifts to our family and the assessed value of that third house.
I was surprised to see that we’ve divested ourselves of $2,815,994.51.
That’s not a typo: more than two point eight million dollars.
My spouse was even more surprised. It didn’t seem as if we were giving away that much in each year, but over the decades it’s added up to a large amount.
That total includes the $30,828.64 I’ve donated to Fisher House and Wounded Warrior Project from my last 16 years of writing & speaking.
At our current rates of gifting & philanthropy, during 2028 our total could cross over $3M.
I’ve never been particularly aggressive about growing our net worth past our financial independence, but philanthropy has definitely kicked in our competitive urges.
It’s one of the best feelings of my life — and I get to enjoy it with family while we’re all still around to experience it together.
For those of you in the U.S. military, that $2.8M highlighted another issue: I gutted it out to 20 for the pension and we clearly overshot the “FInish line.”
In the early 1990s, when we were 10 years into our active-duty careers, we’d already saved and invested the dollars that would compound-fuel our rocket of financial independence. Once we started our family, our new priorities (spending more time with our daughter!) directly conflicted with our dual-military workload and our quality of life. Yet I stayed on active duty out of fear, ignorance, and chronic fatigue.
In retrospect, my spouse and I should both have left active duty and moved to the Reserves. We would have had a year or two of lower income (with drill weekends) but we eventually would have networked our way into jobs as civil servants, or as contractors, or on extended periods of active duty.
Writing as a guy with degrees in engineering and computer science, I would’ve started tinkering with the World Wide Web at its infancy…on dial-up service with a 14.4 kbps modem. Who knows where that curiosity would have taken me?
We might have been asked to mobilize and deploy, but those of you who served in the 1990s can remember that the military was too busy cutting expenses.
Maybe we would have earned our Reserve pensions — or maybe not. Either way we certainly knew how to reach financial independence on a high savings rate.
Learn from my mistakes: stay on active duty as long as you find it challenging & fulfilling, but take it one obligation at a time. Be ready to leave active duty for the Reserves or Guard, and don’t feel compelled to gut it out to 20.
“Readers: What’s Your FI Plan For Gifting And Philanthropy?”
Let’s circle back to the question at the beginning of this post.
Where does your giving fit into FI? Should your giving be done (if at all) while still pursuing FI, or only after FI is reached?
If you give (before or after FI), what percent of time/money do you give?
What are you doing now (if anything) to give your time and money?
If you receive a windfall or an inheritance, what would you do with it? Would your thoughts be different before you’d reached your FI and after you’d reached FI?
Do you plan to leave an inheritance? How will you distribute your wealth at your death?
What are your reasons behind your plans, and how will you implement this?
For those who have more philanthropy experience, what advice do you have for ESIMoney readers?
