A Quarter Million in DAFs: A Retirement Goal Achieved

This is not your typical FIRE blog, and I’m not an average FIRE blogger. Financial Independence was never a goal of mine; its presence in my life was a discovery. A few years ago, I learned of the concept, realized I already had enough to retire early, and have been grasping for good reasons not to retire ever since.

I’ve got a good job. I don’t love every aspect of the work I do, but it’s not a job I’ve been desperate to escape from. I know there are a number of things I will miss when I leave my anesthesia career, and I’ve been putting that day off for awhile now with a number of tactics that I believe will serve me well in the future.

 

Delaying Early Retirement

 

I wasn’t going to retire before my fortieth birthday just because the numbers suggested I could. I figured I would need a few years to figure out if that’s what I really wanted to do with my life. I also had to figure out what I would do next.

Those questions have been answered. I do plan to retire from medicine in the next year or two. I’ve got a list of 50 things I’d like to do with more free time, and I’ll be transitioning to this non-clinical career of a personal finance blogger. Call it semi-retirement or whatever you like.

While sorting these things out, I employed three tactics to ensure I’d be working a while:

  1. I set a higher goal of Financial Freedom at 36x annual expenses.
  2. I started earning less by transitioning to a part time schedule.
  3. I set a goal to build up our Donor Advised Funds to 10% of our nest egg goal.

My History With Donor Advised Funds

 

I’ve been donating to a donor advised fund since 2013. It was a year in which I worked as a locum tenens doc with many of my weeks off. I also incurred substantial capital gains when I sold funds to buy a house.

I discovered Bogleheads and realized the funds I owned were suboptimal. Most of them were actively managed, and even the passive index fund I held had an expense ratio of 0.38%. T. Rowe Price, as recommended by Andrew Tobias, wasn’t necessarily a bad choice, but it wasn’t the best, either.

I wanted to jettison more of those mutual funds I was holding in a taxable account, and I found out I could do so by starting a donor advised fund with the T. Rowe Price Program for Charitable Giving. It sounded so sophisticated, and I learned that a sizable donation would keep me out of  the top tax bracket and the new 20% capital gains bracket, so I signed on to The Program.

In 2014, I started loading up my taxable account with Vanguard’s passive index funds instead, but I still had some money in the active funds I had purchased years earlier. A review of my 2014 tax documents from T. Rowe Price convinced me that it was time to be done with those.

In early 2015, I opened a new donor advised fund (DAF) with Vanguard Charitable by donating those old T. Rowe Price funds to it. I also gifted the funds held in the T. Rowe Price DAF to the Vanguard DAF to take advantage of the lower fees in the new program.

In the fall of 2015, I logged in to Vanguard Charitable to start making our annual donations. That’s when I became familiar with the $500 minimum grant size that Vanguard has set. At that point, I finally did what I should have done back in 2013 and I researched my options, comparing and contrasting different DAFs.

I learned that both Schwab Charitable and Fidelity Charitable not only have lower minimum donations to open an account ($5,000 versus Vanguard’s $25,000), but they also allow you to give grants of $50 and up, which is a much lower floor than Vanguard’s $500.

So now I have a Fidelity Charitable account for smaller grant giving, a Vanguard Charitable account for larger grants, and an unfunded account with the T. Rowe Price for Charitable Giving.

If I were to open one and only one today, I would choose Fidelity. Schwab appears to be quite similar.

Growing the Donor Advised Funds

 

To get the maximum number of dollars into a DAF, you want to donate when it costs you the least. That will be when you have income that puts you in the highest tax bracket you ever expect to be in. For me, that’s been in these final years of working full time.

In 2016, our DAFs were approaching six figures, and we more than doubled that with a one-time $100,000  donation. I went into detail as to how I chose the mutual funds with the largest percentage gain to make that donation optimally in this post.

This is my last year with mostly full-time employment, and I will likely drop into a lower tax bracket next year. Pending tax reform could change the tax brackets in the near future. I decided to finish funding our DAFs this year, knowing that my income in 2016 puts us in the 33% marginal federal income tax bracket and a 9.85% state income tax bracket.

As of 11/20, we were $36,276 shy of the $250,000 goal I set as a prerequisite for early retirement in my investor policy statement.

Donating Vanguard Mutual Funds to Vanguard Charitable

 

Vanguard Charitable gives you a number of options for contributing to your DAF, including donating assets held at Vanguard, which is what I choose to do.

 

Vanguard Charitable Contribution

Vanguard Charitable Contribution

 

As I learned last year, you cannot select particular lots to sell when doing this online, even if you have Specific ID as your chosen cost basis in the taxable account. You can donate specific lots with a phone call or letter of instruction, but the default when donating is FIFO, or in other words, the oldest lots will be donated first.

 

 

Vanguard Charitable FIFO

 

This year, the oldest lots I still held happened to be the lots with the most gains, so I was able to set up the donation in five or ten minutes online.

 

Vanguard Charitable Lots

Vanguard Charitable Lots

 

Once you have chosen the funds to donate, you will be presented with all the available investment options. Vanguard Charitable offers five multi-fund options and eight individual fund options. You can invest in a percentage of any or all of these.

 

Vanguard Charitable Investment Options

Vanguard Charitable Investment Options

 

I like to keep things simple and can obviously tolerate volatility and loss in hopes of having a higher long-term return. I keep 100% of my DAF money invested aggressively in the 100% stock Total Equity Fund. It consists of 55% S&P 500, 15% extended US market, and 30% total international market, with an expense ratio of 0.07%.

Another click or two, and you’ve got yourself a confirmation.

 

Vanguard Charitable Confirmation

Vanguard Charitable Confirmation

 

Note that Vanguard has a minimum of $5,000 for additional contributions to their DAF. With Schwab, it is $500.

Debunking Donor Advised Fund Myths

 

Any time I see a blog post or forum thread on the subject, I read with great interest. A few comments come up repeatedly as reasons to delay or avoid opening or contributing to a donor advised fund, and I’d like to address them here.

 

Myth #1: The fees negate the benefits.

 

It is true that the popular DAFs have similar fees of about 0.6% per year plus the expense ratios of the funds you choose. It’s also true that if you’re in a financial position to open a DAF, you’re presumably choosing between putting money in a DAF or keeping in invested in a taxable brokerage account.

I do my best to invest in a reasonably tax-efficient manner in my taxable account, but it still sees a tax drag of nearly 0.6% per year. I’m not a fan of receiving dividends in a taxable account, and the roughly 2% dividend I do receive is subject to the 15% tax on qualified dividends, the 3.8% NIIT, and a 9.85% state income tax.

In other words, at least for the time being, the fee drag in the DAF is very similar to the tax drag that same money would see in my taxable account.

This will change after retirement when I drop into lower tax brackets, but there are other benefits that make the low fees worthwhile. Among them is the ease of making grants from the DAF and the elimination of a need to keep track and collect receipts from our year-end giving.

Myth #2: The longer you wait to donate, the better the deduction you’ll get.

 

There is some truth to this, but the math shows it doesn’t really make any difference. For example:

If you give $100 now, and get $45 back on your taxes now, you’ve got $100 in the DAF and $45 to invest in your taxable account.

Years later, when the market has doubled, you have $200 in the DAF and $90 in your taxable account. (Ignoring the 0.6% in tax drag / fees which you would have if you give now or wait to give later).

If you wait all those years to donate until that original $100 in the taxable account has doubled, you will put $200 in the DAF and get $90 back.

So there’s really no benefit to waiting if you plan to give eventually, anyway, unless you plan to be in a higher tax bracket later in life. In that case, you should wait until you’re in the highest bracket you expect to be in to start a donor advised fund. Conversely, if you expect to be in lower tax brackets in the future, there’s no time like the present to fully fund a DAF.

Myth #3: Donor Advised Funds are a Tax Avoidance Scheme

 

Reading through some of the rationale I used to open and contribute to these DAFs, I can see how one could start to think this way. However, giving a dollar to get 45 cents back is not going to get you ahead financially.

A better way to look at any tax-advantaged giving, whether via a DAF or not, is to look at it as the charity receiving the most money for every dollar you choose to part with.

If you give $100 away without itemizing deductions or using a DAF, the charity receives exactly $100.

If you part with $100 in a tax-advantaged way, the charity receives $180 (assuming a 45% marginal tax bracket). If your marginal tax is much lower at 25% in a no-income tax state, the charity still gets $133 for every $100 you “lose” when you donate.

I’ll be honest — if there weren’t significant tax advantages to donating, I’d be less inclined to be generous. As it is, most days I would rather give my chosen charity a dollar than pay another 45 cents in taxes, and it appears a lot of other people feel the same way as me. As of 2016, there were nearly 285,000 DAF accounts holding over 85 Billion dollars.

 


You’re still not using Personal Capital? Track all your accounts in one place like I do.


 

Are we done donating to Donor Advised Funds?

 

My goal was to grow our DAFs to a quarter million dollars prior to retiring, and that goal has been met. Next year, I plan to give from, but probably not contribute to, our donor advised funds.

However, that doesn’t mean we are completely done giving. I have made a pledge to donate half of my site’s profits to charity, and I’ve now donated about $140,000 since making that pledge.

Note that I have not made $280,000 in profit. Not even close. But if my profits someday exceed that big number, I’ll be donating more. If I’m able to build our DAFs up to $1 Million, that would be awesome.

Using the 4% rule, I am now comfortable donating at least $10,000 a year from our DAF. With a $1 Million DAF, we could comfortably give $40,000 a year, and probably more. I’m not saying I expect that to happen, but a man can dream, can’t he?

As time goes on, we’ll probably give in excess of the 4% rule, but if we do end up with money left in the accounts, we have desigated our boys as successors to each control half of the remaining funds.

 

DAF successors

our DAF successors

Bloggers with Donor Advised Funds

 

I know a number of other bloggers who have established donor advised funds and written about them. If I missed you, please let me know in the comments and I’ll add you to the list.

Bloggers Discussing #actsofkindness

 

You can give generously with a lot less money or no money at all. There is a chain of blog posts on the topic. Check out what others are doing!

 



 

Have you opened or considered funding a Donor Advised Fund? Why or why not?

58 comments

  • Financial Independence was never a goal of mine; its presence in my life was a discovery. A few years ago, I learned of the concept, realized I already had enough to retire early, and have been grasping for good reasons not to retire ever since.

    As you know, we share this in common! Congrats on meeting your DAF goal, that’s awesome. And thanks for the rundown on these as I’m very interested in starting one and was not aware of the differences between Vanguard, Schwab, and Fidelity.

    One thing that concerns me is I’ve read that when it comes time to give from the DAF the administrator (or sponsor) of the fund is not required to give the money where you want. I’ve read they ‘usually’ do, but that if the organization that you wish to give has a mission that runs counter to their philosophy they could refuse. Is this rule consistent with all of them? If so this makes me nervous.

    • Yes! I feel like we cheated. I’ve said it before, but I’m glad I was blissfully unaware of FIRE until I had the FI part secured. I might have hit FI a year or two sooner if it was the ultimate goal, but it might have felt like it took twice as long.

      As far as the DAFs not granting your money, I would not expect that to happen with the large, popular DAFs discussed here as long as you’re choosing a registered 501(c)(3). There would be mutiny.

      Best,
      -PoF

  • I’ve actually written a post comparing Vanguard and Fidelity Charitable, and despite originally wanting to open a Vanguard fund, like you I’ve decided that Fidelity makes more sense. Usually I love all things Vanguard, and while I do believe they have a much better array of low-cost investment choices, they’re very restrictive in the assets they accept and they have a lot of surprise fees. It’s really unfortunate – I hope one day they’ll revise the fund to be more competitive.

  • Those DAF successors look so cute 😍😀.

    You’re doing great POF, a quarter million is nothing to joke about. And I look forward to when you’re going to reach the $1M new goal. I think it’s very doable, considering how fast your blog is growing.

    Btw, what are some of your favourite charities?

    • Thank you, Ms99to1.

      I’ve listed some of the places we’ve donated to from our DAF in the charitable mission page. So far, it’s been mostly local charities and disaster relief.

      As I have the ability to give more generously, I’ll be looking at effective altruism and where my donated dollars can have the most impact globally.

      Cheers!
      -PoF

      • HospitalDoc

        PoF,
        Can you use your donor funds to send deserving students to college outside of United States instead of a charitable organizations?
        Thanks!

        • You can only donate to non-profits registered as 501(c)(3). There are well over a million of them, but you can’t simply give to a person directly. GoFundMe campaigns are similarly not allowed to receive tax-deductible dollars.

          Best,
          -PoF

  • GXA

    Thanks for the post! Like yourself, I discovered the concept of FI a few years ago and was about there. Your post last year inspired me to open a DAF and make a significant contribution. We will be doing the same this year given possible tax reform and reduced work hours and income for our family next year and going forward.

    Thanks for spreading all this great information!

    • I remember that, GXA. It’s great to hear from you again.

      I’m happy to hear you’ve got no regrets and plan to continue to build up the fund. It appears that you and I have similar reasons to give this year.

      Enjoy the new and improved schedule. Cheers!
      -PoF

  • You inspire me!
    I have been at this longer. I think I started my DAF in 2003, but my amounts look puny compared to yours. I need to think bigger and give more. You are right also that this is a particularly good year for me to do that. I’m glad you share your story because it will inspire others as well.

    • Inspiration is the reason I write these posts, and a few people reached out last year and told me they started six-figure DAFs of their own, which is very redeeming. Pre-paid donations are a wonderful thing.

      That’s awesome to hear you’ve been using one since 2003 when I was a broke intern / CA-1. Even then, I gave a little bit directly. I remember sending $50 to the Red Cross after a hurricane and feeling really good about it — much better than I felt after blowing $50 on a night on the town.

      Cheers!
      -PoF

  • hatton1

    You inspired me to start one also. I funded it yesterday. I chose Vanguard because it was easier to transfer the money into it. I will admit that Fidelity has a slicker website. I don’t know how many of you this will apply to but I am going to do a Roth conversion in a similar amount to achieve this in a less painful way. We all play with the tax code if we can. Tis the season to be charitable.
    Interestingly my brother who is a lawyer had no idea what I was talking about when I mentioned doing this.

    • I am thrilled to hear this, hatton1! Glad Vanguard was able to sort it out.

      Fidelity does have a button to donate securities held at outside institution(s), as does Vanguard. I haven’t used it, but it’s probably easy enough to do.

      I don’t know how widely known DAFs are, but I’m trying to do my small part to raise awareness. They are such a great vehicle for giving for the high income professional.

      Best,
      -PoF

  • Congrats on the milestone! That is a great acheivement.
    You’ve really got me thinking about this. We have always budgeted a portion for charity each year as part of our financial plan. However, the idea of redirecting more money to chosen charities and away from government (not my favourite charity) now while I am still in the highest tax bracket here is very appealing.
    I also like the opportunity for the heirs apparent to be involved in the tradition of giving as part of their financial education.
    Thanks for the education on my part.

    • You bet — I don’t know if Canadians have access to the same or similar programs, but I’d be interested in hearing about the options for those of you north of the border.

      Cheers!
      -PoF

      • After this article, I did look into it. We do have them here at many of the big financial institutions or at the community foundation level. We have an option at MD Management via the Canadian Medical Association, where I keep my portfolio. I am going to look into in preparation for start up in the coming calendar/tax year.

  • Really impressive feat. Well done!

    I hope you know that perhaps an equally impressive feat is how this has prompted others to do the same. We started our own DAF at Fidelity based in part from the motivation you (and others who wrote about DAF’s) provided. I am certain there are other folks who are contributing more to charity and that is a huge, huge win.

    Happy Thanksgiving to y’all in the PoF family.

    • That is awesome to hear, Mr. PIE.

      I am adding you to the list of bloggers with DAFs. Inspiration is the goal here, and I’m overjoyed to know that it’s working.

      Cheers and Happy Thanksgiving to the PIE family!
      -PoF

  • Inspiring post, congrats on coming into your 250k goal!

    A couple other interesting mentions from this post – 1) you hit FI without knowing what it was (a story I knew), but 2) only 4 years ago you were invested in active funds and a high cost index. I just assumed you’d also been a low cost indexer! Which I take both to show that with a high savings rate, success likely comes regardless of perfect financial knowledge. But I’m lucky to have blogs like yours at the beginning of my career instead of 10 years in. So thanks!!

    • Thanks, Charlie.

      I learned enough from Tobias’ book to avoid huge mistakes, but hadn’t discovered the beautiful simplicity of the most inexpensive index funds. I just checked my email archives and found my welcome packet from Vanguard in July of 2013.

      I think resources existed back in 2006 when WCI and I finished residency, but they certainly weren’t as numerous and easy to find.

      Cheers!
      -PoF

  • Awesome job! You know how much I think of your efforts here — not only giving but making others aware of it and encouraging the same. If we can get more people to follow along and give, the impact will be so much greater than what we could do alone.

    I use Vanguard since 1) I own VG funds and the transfer process is so, so easy and 2) I can’t imagine wanting to give a DAF gift lower than $500. Anything that low I’d simply give out of cash. (I know, tsk tsk on me.)

    Hope the trip is going well and you all are having a blast!

    • Thank you, ESI$. I know from our discussions and your recent blog post that you’ve been much more generous than me.

      I like to have the ability to give less than $500. For example, when our boys come home with those catalogs of overpriced food or gifts that we’re supposed to sell to neighbors, family, and friends, we refuse to subject people to that. We recycle the catalogs, treat the kids to a treat similar to one they could have earned selling the junk, and donate $50 or $100 each directly to the school from our DAF.

      Best,
      -PoF

  • Ron Sheldon

    Thank you for the explanation of DAFs and your fund selection decision process and contribution goals. I have been considering establishing a DAF but haven’t but in enough research effort to make and implement the decision.

    One thing that has held me back is the 100% matching contribution my employer I retired from, IBM, makes when I contribute directly to a charity that qualifies for the match — approved U.S.-based colleges, universities and postsecondary institutions, hospitals, hospices, nursing homes, cultural and environmental institutions that would be 501(c)3s. For example, I annually contribute with a completed IBM matching form to my local PBS station as an education institution and IBM matches my contribution when the PBS station completes its portion of the form and submits it to IBM.

    Do you know or can you or someone direct me to where I can learn whether a DAF will include with donations I specify the IBM matching grant form I prepare so IBM will match my qualified donations from my DAF?

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  • TJ

    Cool to see my name up there, PoF!

    My blog has more or less been scrubbed from Google at this point, but I’m absolutely ok with the legacy of my inactive blog showing up on in this post. Hopefully this list grows the next time I stumble upon it..

    I can’t stress enough how having the DAF allows one to be more charitable during a time of unemployment or underemployment. When I contributed my $17k to the DAF, I want to say somewhere in the neighborhood of $6k came back from the federal and state governments. It would have been have even “more discounted” if I had contributed long term appreciated securities rather than cash. When I saw the tragic natural disaster in Houston, I could send some dough to that community without feeling pain in my budget. That’s the power of the DAF and I highly recommend it to those who can afford it.

    Especially non-physician early retirees because they’re unlikely to be itemizing after they retire.

  • HiCOLAMD

    Great post! I love my DAF. One advantage which becomes clear from your story is the ability to ‘clean up’ your spread sheet by donating appreciated stocks or mutual funds that you no longer feel fit into your investing plan. For me, I have some legacy stocks from DRiPs (Dividend Reinvestment Programs) – these were promoted on line in the past and I fell for them. Now I am embarrassed to have them as I prefer index funds to individual stocks. Furthermore, I have to account for the dividends each year on my taxes, and if I were to sell them, not only would I incur the capital gains taxes, but it would be a lot of trouble to determine my cash basis. So I have been donating them over the past couple of years to a DAF – problem solved and I am building up a reservoir for making current and future donations.

    • Good to hear, HiCOLAMD.

      It can feel like you’re “stuck with” some stocks and funds that you purchased long ago, inherited, or were gifted. Selling means incurring capital gains, which as outlined above, is more that 15% for most people, and can be over 35% even for long-term capital gains. Donating them is a good way to move on from those to get your portfolio to look more like something you can be proud of.

      Between donating to the DAF, selling to buy property, and tax loss harvesting, all but one of my lots in taxable were purchased in 2016 or 2017.

      Best,
      -PoF

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  • Marilyn

    That 3 weeks in Spain with your family sounds like it was convincing to move forward with full retirement from medicine 🙂

    I’m happy for you. My husband (EM) says he wants to fully retire from clinical medicine by 40. There really is a huge wide world outside of the hospital.

    I’m looking forward to doing extended trips with our family. I’d love to rent an Airbnb for the summer in NYC, Seattle, or DC. I have a social fantasy of starting a FI house swapping group.

    • I like your fantasy, Marilyn — the one about the FI housing swap, that is. I’m definitely interested in exploring current house swapping systems and house sitting opportunities. Seems like a great, frugal way to insert yourselves right into a community.

      Best of luck to you and your husband in reaching your goals. You’ll find the series with E.T.F. (second post out today) of interest. He similarly has a goal to be comfortable FI by about age 40.

      Cheers!
      -PoF

      p.s. Although we’re practicing our Spanish on this trip, we’re not actually in Spain. More details to be revealed upon our return to Estados Unidos.

  • POF – Thank you for your long series on donor advised funds, its the best writeup I’ve ever seen. Community Foundations have been doing this for a long time, but really failed at marking it to the masses. (I’ve been involved with them locally at 3 different places I’ve lived). Fidelity and Vanguard are only starting to market their availability.

    I agree about the flexibility of the small dollar grants, I’m always asked about coworkers raising money and I feel compelled both in a leadership position and with my capacity to do something, so its nice to be able to send $100 and have the person get a letter. Keep spreading the word about their power!

  • We recently opened a DAF through Fidelity and also have a $250,000 goal before FIRE! Congratulations on being so close to your goal!!

    For us, opening the fund was a great way to jettison some very low-cost basis stock (one of which had a $1 cost basis, but now trades at $138, oof!) while also doing something good. I was really excited when we discovered the structure because we always included giving in our FIRE budget anyway, and the tax efficiency is so great. And I love the idea of creating a legacy of giving by making our boys trustees after our passing.

    • From $1 to $138? If only you could turn back time on that one and buy more, you’d be retired already. I know a guy with a DeLorean if you know a guy with a flux capacitor. 🙂

      Glad to hear you’ve joined the party and have the same lofty goal. Stories like yours counter the assumptions some have that the FIRE crowd is a selfish one.

      Cheers!
      -PoF

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  • John

    How much have you granted from your DAFs since inception?

  • John

    Why is it a focus or accomplishment to transfer your money from one account (taxable) to another (DAF)? The spiritual achievement of charitable giving occurs when control is relinquished.

    Based on your prior posts you have a lifetime gross income of maybe 4.5 million. You have contributed say 4% of that to the DAF (the balance consists of growth within the DAF). Are you planning to continue to contribute from your annual income to your DAF or are you planning to fund all or most future charitable donations from the DAF without further contributions? Why is it a goal to establish a DAF of a certain size rather than to contribute a certain amount toward charity? Why accumulate a large DAF balance with relatively small (4% swr) annual contributions? When do you envision transferring the balance of your DAF to traditional charities?

    • Good questions, John. I think I’ve answered some of them in this post and others that I’ve written on DAFs, but I’ll do my best to address them here.

      For the first six or seven years of my career, we donated money directly to charities. It’s only in the last four years that I have had a donor advised fund.

      I am already working part-time and I do not expect to be working (as an anesthesiologist, anyway) in another year or two. I know that these years are likely the last years in which we will be in the upper income tax brackets, so it makes sense to frontload our giving. In essence, it allows us to give more. For every net dollar we donate, a larger amount will be given to charity.

      I discussed above that we may not be done donating. No need to repeat that here. A 4% SWR will allow us to give for many years to come. If we do not suffer a poor sequence of returns, we’ll be in a position to give more generously in later years.

      Why is a sizable DAF a goal? It’s just my goal. It doesn’t have to be yours or anybody else’s. Some have given much more; some will give less. Some choose not to give at all. And that’s OK by me. But if I can inspire others to follow suit, that’s a win in my book. All money given to a DAF will be doled out to charities in due time.

      Best,
      -PoF

  • John

    I don’t know how to say it without sounding sanctimonious, which is not my intention. But it seems to me you haven’t given away the money. You’ve earmarked it, but given almost none away. You’ve retained control, and by identifying your children as successor donors, you’ve perpetuated family/dynastic control for another generation.

    It’s why I don’t understand identifying a DAF of whatever size as a goal. You didn’t tell me how large your Roth IRA as, or your 401k. With your strategy, the DAF isn’t really different. Except in the eyes of the IRS, you still think of it as your money. You control the investment choices, you plan to sustain it indefinitely with a 4% swr, and you plan to have your children take over any remainder.

    Bottom line, I think you are double counting your generosity and giving less than you could.

    This isn’t meant to be accusatory. I hope you’ll read this with an open mind and heart. I also say this from personal experience. I once accumulated large amounts in my DAF with plans to give it away later. For example in our case we put in $15k per year and gave away $7000. Over time the DAF grew to $50,000. I soon realized this was folly. I wasn’t giving away the money, just moving it from one account to another. And I wasn’t giving away $15k per year, I was giving away $7000. Half as generous as I wanted to be, and could be.

    So we upped our granting to $20k per year. And by next year will have spent down the excess. We still transfer $15k to the DAF each year and next year will up it to $20k to sustain our new level of granting at $20k annually. You’ll also notice that we’ve altered our terminology to reflect reality. Money to a DAF is a transfer, not a gift, contribution, or act of charity. The charity occurs with the grant.

    I see the wisdom of arbitraging your tax rate and lump summing your future giving to the DAF now. But I encourage you to have a finite plan to grant that money over a shorter period of time. And to consider your personal charitable goals as what comes out of your pockets, not what you can grow an amount to over time in a tax protected account.

    Best

    • Thank you for the update, John. The line of questioning sounded overly negative without the context of your experience and generosity with donor advised funds.

      I think for me and other early retirees, the arbitrage you mention is key. For me, I also expect to feel some guilt in leaving behind a lucrative career. I don’t need the money, but the money I’m walking away from could be used for the greater good. Building up the DAF to equal about 10% of our retirement assets should help mitigate those feelings.

      With the possibility of tax reform doubling the standard deduction, a lot of families, including mine, will be less likely to itemize in the future. 2017 may be the very best time to load up a donor advised fund. Again, I see it not as maximizing the deduction, but rather giving the most for each net dollar I part with.

      As we both know, the money in the DAF can never be taken back, and I look at it as already given away. I just haven’t decided where all of it is going yet, and I’d like to treat it as more of an endowment than a pool of money to be distributed quickly.

      Over time, if this site continues to grow as it has in its first two years, there is a real possibility that I’ll be adding substantial sums to our DAF annually. If that happens, we will feel comfortable giving more from the fund each year. I also hope my boys will one day be in a position to start charitable giving funds of their own. If they are successful in that regard, I may change our “beneficiaries” to a chosen charity rather than to give them control, but given their ages (7 & 9), that won’t happen for quite some time.

      Thank you for the different perspective and for your generous giving over the years.

      Best,
      -PoF

  • Great job, Dr. POF! While I haven’t set up a DAF, I like the benefits and simplicity of it as you explain here. I have so far chosen to give to charity from my own direct earnings/savings keeping a loose track on the %age to this category with respect to our monthly spending/income. If I ever choose to go this route, I will definitely be looking into Vanguard DAF.

  • Joe

    Hi, it was your original post on DAF that got me started with a $100k donation. I’m now up to $200k+ and counting. Thanks again!

    I’ve given away about $60k from the DAF already.

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