Which Costs More: A 10% Tithe or a 1% Account Fee?

Physician Financial ServicesA few weeks ago, I was asked by a reader to consider writing about the financial impact of charitable giving on wealth building. I was hesitant. While I believe in charity — I’ve pledged to donate half of this blog’s revenue — the inescapable fact is that parting with money decreases wealth. Greed Trumps generosity when it comes to financial gain.

I let the idea simmer on the back burner for a few weeks. How could I write this post without looking like a cold-hearted jerk who wants you to hoard your money? That’s not me! I absolutely believe you can and should give some money away. Giving may not add to your net worth, but it can make you happier.

How about a comparison? I’ve already displayed how investment fees can cost millions. What if I compared a 10% tithe, the type of giving the reader inquired about, with typical investment fees, which are on the order of one to two percent. At first blush, it seems that math would favor the 1% fee over the 10% tithe. But if that were so, this post would not have gotten out of the gates. Let’s dig a little deeper.


What is a 10% Tithe?



abbeys don’t build themselves

To tithe is to donate 10% of your income to a charitable organization (typically a church). While I imagine there are many gray areas and different ways to calculate this, I know some people choose to give 10% of their paycheck, that is, 10% of what’s left after taxes, pre-tax investments and insurance payments have been subtracted by the employer. That’s how I will calculate a tithe for this exercise.

With the tax rates “enjoyed” by those of us earning a six-figure salary, a 10% tithe might represent 6% to 8% of gross salary. Factor in a tax deduction at a marginal tax rate of 30% to 50% , and the true cost of our 10% tithe is 3% to 5% of gross salary.



“the true cost of our 10% tithe is 3% to 5% of gross salary.”

A Look at Account Fees


Typical fees in an investment account are in the range of 1% to 2%. It is possible to keep fees much lower; a DIY investor should be able to create a portfolio with no fees other than the expense ratio built into the investments. My portfolio costs me about 0.08% per year.


Personal Capital Fees

image credit Personal Capital


Is it possible for a 1% to 2% fee to cost more than the 3% to 5% true cost of a tithe? Of course it’s possible. If you’re a saver, it’s almost inevitable. We’re talking about percentages of different things. The investment fees are taken from the value of your entire portfolio. The tithe is taken from your annual income.

When you’re young, and your net worth is low, the tithe will cost more. As your net worth grows to a multiple of your annual income, the “small” management fee will surpass the cost of the tithe, and the discrepancy will only grow bigger with time.


Example #1: Dr. Altruism


Borrowing some numbers from this post on specialty choice, we’ll run some numbers for Dr. Altruism, one of our physicians who is in a lower salary tier. We’ll calculate the number of years to financial independence for a Dr. Altruism who tithes, and compare to the ironic non-tithing Dr. Altruism with typical investment fees of 1%, 1.5%, and 2% eating away at the portfolio like a very hungry caterpillar.




The numbers at the bottom are the key numbers. Looking above them, we see that “Post-tax income” is higher for the tithing Dr. A, due to the tax deduction for charitable giving. The “Take-home Pay” line is lower, and reflects what’s left after the tithe. Also note that the tithing Dr. A had to choose between funding the 457(b) and 529 fund since there wasn’t enough to do both, or fund a taxable account.

Dr. A has a $200,000 salary, and his paychecks add up to about $10,000 a month. Donating $1,000 a month, he will tithe $12,000 a year. With an estimated $3,500 benefit from the related tax deduction, he invests $8,500 less per year than his Scroogey counterpart. His generosity delays reaching the $2,500,000 goal by one and a half to three years.




How does this compare to the addition of a 1% fee on his investment portfolio? The 1% fee has essentially the same effect as the 10% tithe over the course of twenty to thirty years. Increase the fees to 1.5% or 2% and tithing is a clear winner.

Going back to the original question posed in the title, it appears we have a tie. But wait! What happens in retirement? The account fees don’t go away. In fact, if the portfolio grows, as it most often does when using a 4% withdrawal rate, the cost of the fees will grow right along with the portfolio.

What about tithing in retirement?

I’m certainly not the authority here, but I’m going to assume that our tithing physician will continue to be charitable in retirement, but to a lesser extent. Without the big income, I’ll assume the tithe is cut in half for the sake of this exercise. What was once a $12,000 tithe costing $8,500 will be reduced to a $6,000 tithe at an annual cost of $4,500.




As expected, the hoarder ends up with the most money throughout retirement, but the tither keeps pace far better than the fee-paying non-tithers. For purposes of this exercise, a constant 5% nominal return (likely 2% to 3% real) was assumed for a somewhat conservative retirement portfolio. $100,000 a year was taken from the portfolio for the first four scenarios, and the Tither withdraws $104,500 per year.

Additional assumptions include that we started tracking Dr. A at a net worth of zero at age 32, and it took 30 years to amass the $2,500,000 portfolio, which is within the range in the first spreadsheet. Depending on student loan debt, market returns, and of course investing fees, the retirement age could be anywhere from about fifty to mid-sixties in this scenario.


What About a Shorter Career, i.e. FIRE?


Dr. Bettercheck has a higher salary, but the same spending habits as Dr. Altruism. Without a tithe, the good doctor is on pace to be financially independent in only 13 to 16 years. How do fewer years worked alter the effect of the tithe?




A 10% tithe will add a year to a year and a half to Dr. Bettercheck’s career. Compared to the non-tithing Dr. with 1% fees, he will be working an extra two to three months to amass the $2.5 million portfolio. Again, the tither wins out compared to paying 1.5% or 2% in fees.

As before, we’ll assume the tithe is slashed in half at retirement, resulting in an annual post-retirement tithe of $9,200, at a cost estimated to be $7,500 per year. Using similar assumptions of 5% returns, $100,000 withdrawn by most, and $107,500 from the tithing Dr. B, we arrive at the following results.




It should come as no surprise that the doctor comes out ahead when he donates a portion of his salary each year, as opposed to giving up a percentage of his nest egg annually. Once again, the tither doesn’t keep pace with the tightwad, but remains on track to gain substantial wealth with returns of 5%, whereas with a 2% investment fee, the doctor could be worse than broke as a nonagenarian.


The Take Home Message


There are two messages today.

One: Giving is good.

The government rewards it, and quite generously for those of us in the higher tax brackets. Donating 10% of your paycheck to bona fide 501(c)(3) charities will delay your ability to retire, but not by all that much. The fear that a tithe can do serious damage to your economic well-being turns out to be a paper tither. Giving is Grrrrrr….eat!

Two: Fees can be killer.

Like a tiger. A 1% or 2% fee sounds miniscule, but compared to a 5% return, we’re looking at a reduction in your investment returns of 20% to 40%. If portfolio returns in a given year are only 2%, you are looking at a reduction in return of 50% to 100%! In a multimillion dollar portfolio, that is huge.

Can the fees be worth it? That’s for you to decide. The average DIY investor underperforms the indexes by 4% to 7%. As outlined in the Top 5 Ways to Manage your money, there’s a good way to DIY and a downright disastrous way.

I hope I’ve done an adequate job convincing you not to hoard your money. Keep a lid on your investment fees, and you can afford to be plenty charitable. Give to whomever you like; if you want the tax deduction, though, be sure the recipient is a registered non-profit organization. Guidestar.org has a searchable database with 1.8 million of them.

Understand that I chose to look at a tithe because that was specifically requested. Additionally, I realize there are different ways to calculate a tithe, but I had to choose one.

Of course, the mathematics would not change one iota if you choose to give your money to a dog shelter or curling club. Comments are welcome, but please refrain from making comments for, against, or agnostic to religion. There are other sites for those debates. This is a personal finance site.

Were you surprised by the results? Do you know how much fees are costing your portfolio? If you could reduce them, would you be more inclined to give? Sound off below.



  • Interesting analysis PoF. I’m not the most religious person but I reflexively thought that 10% tithe has to be worse than a 1% fee. Thanks for showing the numbers.

  • Ten Factorial Rocks

    Absolutely, 1%+ fees is a killer. Besides, Giving makes you happier. We must be channeling our thoughts today, POF! Wrote a post today about one type of giving that certainly makes me happier. http://tenfactorialrocks.com/worth-your-while/

  • Very unique and cool way to look at donations. I knew independently about the wealth destroying aspects of fees and the financial benefits of charitable giving but I never thought to look at them as offsets. Our human brains see the ten percent and automatically assume it must be larger then 1 percent. We forget that one is 10 percent of income and the other is 1 percent of total investments, if you retire at 25x income, then 1 percent now is 25 percent of your income.

    • Thank you, FTF. I didn’t want to look at charitable giving in isolation, but the comparison is eye-opening, isn’t it.

      And what you say is true, although I want to point out that we aim to save a multiple of annual expenses, which for me, is a fraction of annual income. If I had to work until I had 25X income, RE would be off the table.


      • Very true. I chose the example to be simplistic. In reality you don’t need 25x your pay. That being said once you take into account the missing compounded returns on fees the number is also far worse then 25%.

  • Since we were married we always committed to give at least 10%, although some years it has been much higher. Honestly, I am so blown away by how far we have come in our net worth growth the last 14 years we have been married. Not only do I feel like we are in a great place financially, but we have steadily poured into charities and I have been able to see the fruit of that. A few times a year we give to help a certain situation, and it always is amazing to see. There is no more meaningful way for me to look back on money spent. And after 14 years, it has created a large pile of very happy memories.

  • Very interesting analysis. When I saw the title, I could guess where it was going but it is still very surprising when you think about it. Fees are killer no matter what way you look at it!

    • Yeah, the numbers didn’t surprise me, either, which is why I didn’t get too “clickbaity” with the title. “The Results Will Astonish You!”

      I will say that many people wouldn’t think twice about paying 1% or 2% in brokerage fees, while assuming they could never afford to part with 10% of every paycheck.


  • Mr Crazy Kicks

    Great exercise! The long term effects of fees are killer. That was a great way to put things into perspective. All those people giving money to the bank in fees when they would be better off giving away significant portions of their pay to charity, brilliant.

  • Interesting numbers and to be honest I was a little surprised by the results. Outside of a 401k, there is no way any investor should be paying more than 0.3% fees and I am being rather generous in that opinion. A quick look at Personal Capital tells me our fees are 0.11% which is quite satisfactory in my book. At FIRE it will drop even further as the only bond fund choice in my 401k has a ridiculously high ( tongue firmly in cheek) fee of 0.34%. We will roll over a portion into a bond fund such as VBTLX at Vanguard with much lower fees.

  • Those that give know the benefits far out weigh the costs. And now, you just proved it. Well done. :O)

  • S.G.

    I think the emphasis on giving being good for you is key. It takes a mindset of having enough in order to give, and there is a spiritual (not necessarily religious, but intangible) benefit to being generous.

    I don’t always give via “charities”. I see myself as a modern day patron, so if there are people in my life who give good service, like my child’s daycare teacher, or serving staff where I like to go to lunch, I try to give them a bit extra every now and them to encourage their good work and show my appreciation.

    • Yes, S.G. Great point!

      There are many ways to be generous, and you don’t have to give only to bona fide charities (although your dollars go further when you do). You can also be giving by donating time or generally being kind to the people you encounter every day.


  • financialibre

    Interesting exercise, PoF – thanks for running the numbers here!

    There is some interesting research implying giving $x can lead to greater happiness than spending $x on yourself, as you point out. But there’s also some important countervailing research on this point. Charitable giving can make some personality types much worse off. It’s not quite a one-size-fits-all proposition. Nevertheless, my personal feeling is that even “non-giver” personality types could find charities suitable to their tastes if they looked.

    Unfortunately, giving to charity doesn’t eliminate investment fees. But that would be an interesting offering for investment firms: “We’ll take X% of your investment fees and donate them to the charity of your choosing…” As your numbers show, this would result in greater giving on net, the donations wouldn’t be “felt” by the givers in the same way tithing outflows are, and investment firms could benefit from tax deductions and social responsibility messaging, probably leading to greater societal benefit all the way around…!

    Nice work here as always, and thank you!

    • Can you link to the countervailing research, FL?

      I like your idea with the fees. I do something along those lines with my site sponsors. I make it clear that I will be donating half of their advertising dollars to charity. I get to choose the charity and take the deduction, but they have the satisfaction of knowing some good (besides exposure and potential new clients) will come from our business relationship.


      • financialibre

        Right on, PoF – your site’s doing great stuff all the way around!

        Here’s a link to a post that went up on FL today covering the research I mentioned. The researchers are a behavioral economics team from Cambridge who found differential satisfaction rates associated with spending categories on the basis of “OCEAN” personality type. Some personality types are made worse off with charity spending. Pretty interesting stuff that builds on earlier research in the field (like the research you mention in this post) but refines some of the broader points from those earlier efforts.


  • TheRetirementManifesto

    Doc, creative and original approach, as always. As mentioned by some above (e.g., Ms Montana), there’s also an unquantifiable benefit of giving. It. Just. Feels. Good. As a tither who has been a low cost investor for 31 years, I can vouch for the value of tithing. Crush the fees, but be generous with what you’ve been given.

    • Good for you! I haven’t done a traditional tithe, and we like to spread our giving around, but our donor advised fund is approaching six figures. I anticipate giving away 5% to 10% of the DAF, and hopefully replenishing it with proceeds from this website. Win, Win!


  • RocDoc

    This analysis is really helpful PoF and thankyou for running the numbers and creating the great multi doctor tables. I find your “patented” multi doctor tables make it easier to understand the financial numbers and make a good presentation. Although I have been reading of the dangers of high investment fees for several years, I have to admit that your study did shock me. Excellent post!

  • ChooseBetterLife

    It’s fantastic that my donations are worth more than I actually pay for them after taxes!
    While I do take advantage of government services like roads, schools, and parks– and I truly appreciate them– they could undoubtedly be provided more efficiently in the private market, so I don’t hesitate to donate to causes with less bureaucracy than the government.

  • Solid analysis PoF. It’s indisputable that fees will erode your portfolio; I’d argue that this is evidence that they may also erode your soul. Here’s to keeping the expenses low so we have more to do some good.

  • zeejaythorne

    Makes perfect sense that donating a percentage can be much greater for you (with tax deductions) than having a percentage of your whole eaten away. Great explanation.

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