Income When You Need It Most

Income When You Need It Most

With fixed income returns at historic lows and with individuals reluctant to take financial risks, an AFHU Hebrew University Charitable Gift Annuity (CGA) may provide considerable economic benefits. In particular, individuals who are retired and who depend upon interest and dividends to defray a portion of their living expenses may find that a CGA will enable them to obtain high, lifetime, fixed rate annuity amounts at low tax costs.  

For example, let us assume that a single individual, age 75, depends upon interest from bank certificates of deposit (CD) for her income.  Her $20,000.00 CD is about to mature.  The CD renewal rate may be less than 1%.  Her basic costs of living are increasing while her income is decreasing.  She contacts AFHU for a calculation of a CGA to run for her lifetime, using the proceeds ($20,000.00) from her matured CD. 

Here’s what she will obtain with a one-life CGA based upon her age (75): 

To illustrate this example: 

        [*assumes use of itemized deductions and 25% marginal rate]

Each year for the first 12.4 years, 75.4% of her annual annuity amount of $1,420.00 will be paid to her tax-free.  If she itemizes her federal deductions and can make use of the charitable deduction of $6,723.40, she may save as much as $1,681.00 in income taxes, assuming combined federal and state marginal income tax rates of 25%. (e.g., $6,723.40 x .25 = $1,681).  The tax savings reduces the cost of her CGA from $20,000.00 to $18,319.00 (e.g., $20,000 – 1,681 = $18,319), thereby increasing her yield on this philanthropic contribution/investment to 7.8% ($1,420/18,319 = 7.8%).

There are rates for CGAs that will run for 2 lives. While rates for 2 lives (e.g., a joint and survivor CGA) are lower than one-life CGAs for individuals of similar ages based on life expectancy tables, they still are considerably higher when compared with other low-risk fixed income vehicles.

For more information and/or a confidential calculation about an immediate AFHU Hebrew University Gift Annuity or any other planned giving vehicle, please contact Ann Wollock at 212-607-8584 or at plannedgiving@afhu.org.