How To Tithe In Retirement With Anthony Saffer

Show Notes

Tithing is fairly simple in your working years. Your only decision is whether to tithe on your net or gross income. But tithing becomes a bit more complicated when you retire. So we’re bringing in an expert to help simplify things today on Faith and Finance. 

• Anthony Saffer is a Certified Financial Planner with One Degree Advisors where they’ve put together a handy resource to help you decide how to tithe in retirement. 
• WHY TITHE? 
• Let’s start by laying the biblical foundation for tithing because some folks will argue that Christians today are no longer under that law. 
• Tthing is an act of worship that demonstrates trust and obedience to God. Key biblical verses to study include, Genesis 14:20, Hebrews 7:4-10, Leviticus 27:30-32, Luke 11:42, and Malachi 3:8-10.
• The practice of tithing, as introduced in Genesis 14 precedes God’s law given to Moses to guide Israel. Hebrews 7 of the New Testament refers to the event of Abraham tithing to the Priest and King, Melchizedek.
• Jesus refers to tithing in Luke 11:42, admonishing the religious leaders who are meticulously calculating their tithe while neglecting love, mercy, and compassion.
• WHY IS TITHING EASIER DURING YOUR WORKING YEARS? 
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• Tithing, which literally means a “tenth,” is often simple to calculate from working income. If someone earns $10,000, a tenth would be $1,000.
• You may question whether you should calculate the tithe from gross (before-tax) or net (after-tax) income. You’ll need to make this personal decision; although, the “first fruits” principle (Leviticus 23:10, 2 Chronicles 31:5), would seem to support tithing prior to paying the government.
• In either case, this is an easy calculation by applying 10% to an income amount.
• Many retirees choose to tithe similarly to how they did in their working years. They simply tithe on whatever income they receive. This can be a simple solution.
• WHEN TITHING IN RETIREMENT SEEMS MORE COMPLICATED
• Questions often arise among retirees about how to tithe in retirement. This is usually because income sources can vary in timing and composition.
• Specifically, many retirement income sources feature some return of principal (contributions) combined with growth or earnings. This feature is not common during working years.
• And while we probably have only one income source while working, that’s often not the case in retirement. There are five common income sources for those who tithe in retirement. Let’s look at common retirement income sources that feature a return of principal and how this can cause confusion when you tithe in retirement:
• 1. Social Security. During your working years, you pay payroll taxes into Social Security to receive an income stream in retirement. A benefits statement obtained from the Social Security Administration website lists how much you have paid into Social Security during your working years.
• Now you have to decide whether to tithe (again) on the return of principal with each payment.
• 2. A pension. If your employer’s pension plan pays you a retirement income stream, similar considerations to Social Security apply. In this case, you would need to see how much, if any, you contributed to your benefit.
• 3. Retirement accounts. Here’s an example: Let’s assume a retiree owns an IRA valued at $1,000,000. ($250,000 of principal and $750,000 of growth)
• Many years of working income contributed to the $250,000 of principal. Should that reitree tithe (again) on this principal amount when withdrawals are made?
• 4. Brokerage investment accounts. The government taxes most dividends, interest, and capital gains as yearly income. Some retirees may choose to tithe on this taxable income since it shows up on their tax return. 
• However, the dividends, interest, and capital gains that investment accounts earn usually stay inside the account until later distribution.  So you must decide if you’ll tithe on the earnings not yet distributed, and possibly tax-free income that doesn’t show up on the tax return. You could also treat this type of account like an IRA, considering it has both a principal component (what you contribute) and earnings growth.
• 5. Rental properties. Expenses are generally ongoing with real estate even while earning rental income. So, should you tithe from the gross rents received or from the net rents received after paying expenses?
• Then, of course, how to tithe on the eventual sale of that property is another decision, likely calculated on the gain above the purchase price.
• SIMPLIFYING THE PROCESS
• Fortunately, there’s a way to make this simpler.
• You have two options for calculating an appropriate tithe in retirement, one simple, the other more complicated. But before personally deciding how to tithe in retirement, it can be helpful to note your priorities.
• Are you aiming to keep things simple? Are you willing to apply more detailed calculations to minimize tithing on the principal? In that case, you want the simple option, tithing on the total income you receive.
• In that case, you tithe off the income that’s deposited into your bank account and any tax-withheld money. (Or, only what hits your bank account if you choose to tithe off the “net.”) That’s the simple method and here’s an example:
• Mary is retired and wants to continue tithing to her local church. Every month she receives $2,500 from Social Security and $3,500 from her IRA directly into her bank account. She has $1,000 withheld from her IRA income for Federal and State taxes each month.
• She chooses to tithe off her gross income. Her monthly tithe is $700. ([$2,500 + $3,500 + $1,000] * 10%). That results in a larger tithe than subtracting any return of principal as it does not delineate principal from earnings.
• You want that option if you aim to tithe faithfully from a generous and cheerful heart without the hassle of math.
• You may be “re-tithing” on principal, but perhaps it does not matter if you believe you are making an impact with your giving and you prioritize simplicity.
• IF THAT’S NOT POSSIBLE …
• For some folks, that may not be possible if they’re struggling to make ends meet. In that case, you would tithe on growth but not principle, because you’ve already tithed on the principal. Because each income source, such as an IRA, Social Security, or pension, differs in composition, you must calculate each source separately, and at One Degree Advisors, they have a great, free resource to help you do that.
• And here’s an example of tithing only on earnings, not principal:
• Let’s go back to our hypothetical friend Mary. She wants to continue tithing, but she only wants to tithe off her growth. She determines that calculating the principal in her Social Security income is too cumbersome but calculating the principal in her IRA income is easy enough.
• Mary discovers that of her $1,000,000 IRA account, $250,000 is principal and $750,000 is growth. So, 25% of her account is principal and 75% is growth. From each IRA withdrawal of $4,500 (Mary chooses to tithe off her gross income), she tithes off $3,375 or 75% of that income. That makes her tithe $587.50 per month. ([$2,500 * 10%] + [$3,375 * 10%])
• For lifetime fixed income sources such as Social Security or a Pension, the calculation may be more challenging. While you may know how much you have contributed, you don’t know how much you will receive over your lifetime. How long you live plus cost-of-living adjustments will vary the total income amount.
• With fixed income sources, some will simply tithe the gross income amount. Others will apply their best estimate of a percentage.

• How can both spouses be sufficiently involved in planning the household finances?
• What is the income limit for Social Security benefits and how should you weigh that against an income opportunity?

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